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On Tuesday, Jefferies analyst firm revised its price target for New Oriental Education & Technology Group Inc. (NYSE:EDU) stock, lowering it to $73.00 from the previous target of $93.00. Despite the reduction, the firm maintains a Buy rating on the company's shares.
The revision follows New Oriental Education's recent fiscal second-quarter 2025 report, which covers the period ending in November 2024. Despite concerns, the company has demonstrated strong fundamentals with impressive revenue growth of 38.65% and healthy gross margins of 52.82%.
The company also conducted an investor call where management provided insight into their financial guidance. According to Jefferies, the guidance suggested weaker-than-anticipated performance, primarily attributed to the overseas test preparation and consulting segments of the business. For deeper insights into EDU's financial health and growth prospects, InvestingPro subscribers can access comprehensive analysis and additional ProTips.
Jefferies highlighted the need for close monitoring of the competitive landscape within the industry and the potential effects of a consumption downgrade. These factors are considered critical as they could impact the company's future performance.
The firm's commentary included a call to action for New Oriental Education's management, emphasizing the importance of managing two key aspects of the business. First is the client life cycle, which pertains to the duration and quality of the relationship with customers. Second is finding an equilibrium between classroom utilization rates and the costs associated with acquiring new clients.
Despite the lowered price target, Jefferies' continued Buy rating indicates a belief in the company's potential value and the possibility of a positive turnaround with effective management strategies. This optimism is supported by EDU's strong financial health score of GOOD from InvestingPro, reflecting robust fundamentals and growth potential. The current price target adjustment reflects the challenges faced but also leaves room for future growth opportunities.
In other recent news, New Oriental Education & Technology Group Inc. reported second-quarter earnings which did not meet analyst expectations. The Chinese private education provider posted adjusted earnings per American depositary share of $0.22 for the fiscal second quarter, falling short of the consensus estimate of $0.32. However, the company's revenue rose 19.4% year-over-year to $1.04 billion, slightly surpassing the expected $1.03 billion.
Despite the revenue beat, the company's operating income decreased 9.8% year-over-year to $19.3 million, partially due to costs related to accelerated capacity expansion for educational businesses. New Oriental's Executive Chairman, Michael Yu, highlighted that revenue from overseas test preparation and study consulting businesses grew 21.1% and 31% respectively compared to last year.
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