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On Friday, Macquarie analysts downgraded shares of TAL International (NYSE: TAL) from Outperform to Neutral. The firm also revised its price target for the stock, decreasing it to $10.90 from the previous target of $14.50. The downgrade was prompted by expectations of a revenue growth moderation in TAL International’s Learning Service and Learning Content divisions. The stock, currently trading at $8.93, has declined nearly 9% in the past week, reflecting market concerns. According to InvestingPro analysis, TAL appears undervalued despite recent challenges, with 12 additional exclusive insights available to subscribers.
Analysts cited the high base effect as a significant factor for the anticipated slowdown in revenue growth. Additionally, they pointed out that the company’s Learning Devices division is likely to continue incurring substantial expenses to establish its sales channel. This investment in the sales channel is expected to keep exerting pressure on the company’s profit margins. Despite these challenges, TAL maintains impressive gross margins of 53.3%, though its current P/E ratio of 80x suggests a premium valuation.
Macquarie’s revised price target represents a 25% reduction from their former target. This decision reflects the analysts’ downward adjustment of their non-GAAP net margin estimates for TAL International. The firm’s analysts believe that the margin pressures, particularly from the Learning Devices division, warrant a more cautious outlook on the stock’s performance. For deeper insights into TAL’s valuation and financial health metrics, access the comprehensive Pro Research Report available exclusively on InvestingPro, covering over 1,400 US stocks.
The analysts’ commentary highlighted the specific challenges facing TAL International, stating, "We expect revenue growth moderation due to high bases in both the Learning Service and Learning Content divisions. Learning Devices will continue to require high spending to build its sales channel, and we believe the division will remain a drag on margins."
The new price target of $10.90, down from $14.50, is indicative of the analysts’ revised expectations for TAL International’s financial performance in the near term. Macquarie’s downgrade to a Neutral rating suggests a more tempered view on the stock’s potential for upside in the current market environment.
In other recent news, TAL International’s financial performance has drawn significant attention from analysts and investors. The company reported first-quarter earnings and revenue that missed analyst expectations, with adjusted earnings per American Depositary Share (ADS) of $0.01 against a consensus estimate of $0.09. Revenue increased by 42.1% year-over-year to $610.2 million but fell short of the projected $624.74 million. This earnings miss has prompted reactions from major financial firms. Morgan Stanley (NYSE:MS) maintained an Overweight rating on TAL International, despite lowering the price target from $13.00 to $12.00, reflecting a recalibration of future earnings projections. Meanwhile, JPMorgan downgraded TAL International from Overweight to Neutral, reducing the price target significantly from $16 to $11 due to concerns over financial transparency and a disappointing operating margin. The firm cited a lack of clarity in TAL’s operational trends as a key factor in their decision. Despite these challenges, TAL reported robust annual revenue growth of 51% for fiscal 2025, with net revenues reaching $2.25 billion and non-GAAP net income rising to $149.5 million. The company also announced an extension of its share repurchase program, allowing for the buyback of up to $490.7 million of its common shares through April 2026.
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