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On Tuesday, Jefferies reaffirmed their Buy rating and $73.00 price target for New Oriental Education (NYSE:EDU), maintaining a positive outlook on the company’s stock. The stock, which has declined 25.9% year-to-date and is trading near its 52-week low at $46.23, appears undervalued according to InvestingPro Fair Value analysis. The firm’s analyst noted that, despite previous timing misjudgments, their investment thesis for EDU remains unchanged, anticipating no price war during the spring enrollment period.
The analyst observed that New Oriental Education’s management has a strong hold on the business, citing no signs of a price war which suggests a stable market position. With impressive gross margins of 52.9% and strong cash flows that adequately cover interest payments, the company maintains a solid financial foundation. Post-Lunar New Year, the company has implemented various expense control measures, indicating a shift in management’s approach to spending. Historically, when business performance has been challenged, the company’s headquarters have intervened to improve operational expenditure (OPEX) efficiency by overriding business unit heads’ spending decisions, particularly in low-growth segments.
This strategic shift is expected to allow operating leverage to resume, with the impact of these OPEX improvement measures projected to become evident in the company’s financial statements within the next 6-9 months. The analyst compared the current transition to a similar one that occurred in fiscal 2014 following a period of excessive spending in fiscal 2013. The firm also referenced similar transitions at other education companies, such as China East Education.
Furthermore, the analyst highlighted a change in EDU’s management attitude, noting that they are now more open to discussing OPEX issues, which is perceived as a positive development. The analyst’s comments suggest a belief in New Oriental Education’s ability to manage its expenses effectively and leverage its operational structure to maintain financial stability and growth. InvestingPro analysis reveals the company maintains a "GOOD" overall financial health score, with 13 additional key insights available to subscribers, including detailed metrics on profitability, growth potential, and market position. Access the comprehensive Pro Research Report for a deep dive into EDU’s financial outlook and competitive positioning.
In other recent news, New Oriental Education & Technology Group Inc. reported several significant developments that have captured investor attention. The company announced an amendment to its 2016 Share Incentive Plan, doubling the cap from 100 million to 200 million shares, with an extension of the plan’s duration by five years. This move aims to enhance employee retention through increased equity incentives. On the financial front, New Oriental faced a series of analyst downgrades and price target reductions. Morgan Stanley (NYSE:MS) revised its price target to $48, citing expected declines in margins and demand for overseas test preparation services. Citi downgraded the company’s stock from Buy to Neutral, lowering the price target to $50 due to concerns about growth prospects and reduced revenue forecasts for fiscal years 2025 to 2027. Similarly, JPMorgan downgraded its rating from Overweight to Neutral, cutting the price target from $85 to $50, following four consecutive quarters of missed guidance. Goldman Sachs also adjusted its price target to $57 from $83, maintaining a Buy rating despite weaker-than-expected revenue guidance for the February quarter. These recent developments reflect a cautious outlook on New Oriental’s growth and profitability amid challenging market conditions.
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