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On Monday, Morgan Stanley (NYSE:MS) adjusted its outlook for New Oriental Education (NYSE:EDU), reducing its price target from $52.00 to $48.00, while maintaining an Equalweight rating on the company’s shares. The revision comes as the firm anticipates a decline in margins for the third fiscal quarter of 2025, along with lower-than-expected demand for overseas test preparation services. The stock, currently trading near its 52-week low of $44.46, has seen a significant decline of over 45% in the past year. According to InvestingPro analysis, the company maintains strong financial health with impressive gross profit margins of 52.91%.
Stifel analysts, led by Eddy Wang, have revised their earnings forecasts for New Oriental Education, projecting a 1% decrease for fiscal year 2025, a 4% reduction for fiscal year 2026, a 5% cut for fiscal year 2027, and a 6-10% decrease for the years 2028 to 2030. The adjustments reflect a less optimistic outlook on the company’s financial performance, particularly in the near term. Despite these revisions, InvestingPro data shows the company maintaining robust revenue growth of 34.42% over the last twelve months, with 10 additional key insights available to subscribers.
The new price target of $48.00 suggests a valuation at 16 times the non-GAAP price-to-earnings (P/E) estimate for fiscal year 2026. This valuation is considered fair by Morgan Stanley, given New Oriental Education’s expected compound annual growth rate (CAGR) of 15% in earnings from fiscal year 2026 to 2029. The analysts’ decision factors in the deceleration of revenue growth from overseas operations and the associated operating leverage, which are likely to impact the company’s core operating profit margin (OPM) in the third fiscal quarter of 2025.
The report from Morgan Stanley indicates a cautious stance on New Oriental Education’s stock, as the analysts await further clarity on the company’s revenue and earnings growth for fiscal year 2026. This conservative approach reflects the uncertainties surrounding the company’s future financial performance in light of current market challenges.
In other recent news, New Oriental Education & Technology Group Inc. has announced a significant amendment to its 2016 Share Incentive Plan. The company doubled the maximum number of common shares available for grants from 100 million to 200 million and extended the plan’s duration by five years. This adjustment aims to enhance New Oriental’s ability to attract and retain talent through additional equity incentives. Meanwhile, Citi analysts have downgraded New Oriental’s stock rating from Buy to Neutral, lowering the price target to $50 from $83, citing growth challenges. Similarly, JPMorgan adjusted its stance on the company, downgrading it from Overweight to Neutral and reducing the price target to $50, following four consecutive quarters of missed guidance. Goldman Sachs also revised its price target for New Oriental, lowering it to $57, while maintaining a Buy rating, due to weaker-than-expected revenue guidance. Additionally, Macquarie downgraded the stock from Outperform to Underperform, reducing the price target to HK$34.30, reflecting a more conservative revenue growth outlook. These developments highlight the challenges New Oriental faces amid a challenging macroeconomic environment and shifting market dynamics.
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