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On Monday, JPMorgan took a cautious stance on New Oriental Education (NYSE:EDU) by reducing its price target from $50.00 to $48.00, while maintaining a Neutral rating on the company’s shares. The move marks the fourth time the firm has lowered its expectations for the education provider within the last year. The stock has faced significant pressure, declining over 34% in the past six months, though InvestingPro data shows the company maintains strong fundamentals with a healthy balance sheet and impressive 53% gross profit margins.
The decision to adjust the price target is described as a precautionary measure by JPMorgan analysts. It anticipates that New Oriental Education might present conservative forward guidance when discussing its financial outlook for the upcoming fiscal year 2026. The analysts suggest that this conservative guidance is likely to temper market expectations. Furthermore, they express concern that ongoing macroeconomic turmoil could continue to negatively impact the demand for overseas study programs, a key area for New Oriental Education. Want deeper insights? InvestingPro subscribers have access to 12 additional expert tips and comprehensive analysis of EDU’s financial health, which currently rates as "GOOD" based on multiple financial metrics.
Despite the downward adjustment, JPMorgan’s valuation of New Oriental Education remains based on a 15 times forward price-to-earnings ratio, which has not changed. The analysts underline the necessity of an "expectation reset" for the company to break the cycle of negative revisions. However, they also note that investor sentiment could remain subdued in the near term until the company’s strategy is proven effective, potentially by a stronger-than-expected performance in the first quarter of fiscal year 2026. According to InvestingPro analysis, the stock currently trades at a PEG ratio of 0.68, suggesting potential undervaluation relative to its growth prospects.
JPMorgan contrasts New Oriental Education with TAL Education (NYSE:TAL), which it prefers due to its perceived lower susceptibility to macroeconomic risks. The analysts believe that TAL is positioned to achieve exceptional growth for several more years, distinguishing it from its peer in the education sector. With revenue growth of 34% in the last twelve months and analyst consensus showing significant upside potential, EDU’s detailed financial analysis is available in the comprehensive Pro Research Report, exclusively on InvestingPro.
In other recent news, New Oriental Education has been the focus of several analyst revisions and company announcements. Jefferies has maintained a Buy rating with a $73 target, highlighting stable market conditions and effective expense control measures by the company. Meanwhile, Morgan Stanley (NYSE:MS) has adjusted its price target to $48, citing anticipated margin declines and lower demand for overseas test preparation services. Similarly, Citi downgraded New Oriental Education from Buy to Neutral, setting a new price target at $50 due to concerns over growth prospects and revenue forecasts.
Additionally, New Oriental Education has doubled its share incentive plan cap from 100 million to 200 million shares, aiming to enhance employee retention and motivation. JPMorgan has also downgraded the stock from Overweight to Neutral, reducing the price target to $50, following a series of quarters where the company missed guidance. This cautious stance reflects the need for New Oriental Education to deliver consistent performance to regain investor confidence.
These developments indicate a period of strategic adjustments and cautious optimism among analysts regarding New Oriental Education’s future financial performance. Investors will be monitoring the company’s ability to navigate these challenges and capitalize on its operational strengths.
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