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On Thursday, Morgan Stanley (NYSE:MS) adjusted its outlook on TAL International (NYSE:TAL) shares by reducing the price target from $13.00 to $12.00. The firm sustained its Overweight rating on the stock despite the change in the price target. According to InvestingPro data, analyst targets for TAL currently range from $11.50 to $18.00, with the company maintaining impressive gross profit margins of 53.6%.
The revision follows TAL International’s earnings miss for the fourth quarter of fiscal 2025. Analysts at Morgan Stanley have recalculated their projections, leading to a decrease in their non-GAAP net profit estimates by 15% for fiscal 2026, 14% for fiscal 2027, and 7% for fiscal 2028. The adjustments reflect the company’s recent performance and are part of a broader reassessment of the company’s future earnings potential. Despite these revisions, InvestingPro data shows strong revenue growth of 55.6% over the last twelve months, with the company maintaining a solid financial health score rated as "GOOD."
In response to the earnings shortfall, Morgan Stanley analysts have decided to advance their valuation base year from fiscal 2025 to fiscal 2026. This shift underlies the new price target of $12.00, which is predicated on a 23 times multiple of the company’s projected fiscal 2027 non-GAAP earnings per share. The analysts believe this valuation is warranted, considering TAL International’s expected compound annual growth rate (CAGR) of 41% in earnings over the period from fiscal 2026 to fiscal 2029. Based on comprehensive analysis from InvestingPro, the stock appears undervalued at current levels, trading at a PEG ratio of just 0.21 despite its current P/E ratio of 72x.
Despite the reduction in the price target, Morgan Stanley views the current valuation of TAL International’s shares as attractive. This perspective comes in the wake of a pullback in the company’s stock price following the earnings announcement. The firm’s position suggests confidence in TAL International’s growth prospects despite the recent financial results.
The Overweight rating indicates that Morgan Stanley’s analysts anticipate that TAL International will outperform the average total return of the stocks the analyst covers over the next 12 to 18 months. Investors will be watching closely to see if the company can meet these growth expectations and if the stock will indeed offer the attractive returns Morgan Stanley forecasts.
In other recent news, TAL Education Group reported first-quarter earnings and revenue that did not meet analyst expectations. The company posted adjusted earnings per American Depositary Share of $0.01, falling short of the consensus estimate of $0.09. Revenue increased by 42.1% year-over-year to $610.2 million but was below the projected $624.74 million. For the full fiscal year 2025, TAL’s net revenues reached $2.25 billion, a 51% increase from the previous year, with a non-GAAP net income of $149.5 million compared to $85.3 million in fiscal 2024. Furthermore, the company’s board extended its share repurchase program by 12 months, allowing for repurchases up to approximately $490.7 million through April 30, 2026.
Additionally, JPMorgan analysts downgraded TAL International’s stock from Overweight to Neutral, reducing the price target to $11 from $16. This decision followed TAL’s fourth-quarter results, which showed a robust 44% growth in RMB terms but a disappointing non-GAAP operating margin of -0.3%. The downgrade reflects concerns over TAL’s lack of transparency in disclosing operational key performance indicators, leading to difficulties in analyzing the company’s underlying trends. Despite maintaining the revenue projections, JPMorgan significantly lowered its margin expectations and cut the earnings per share forecast by about 30%. The firm plans to remain on the sidelines until there is greater visibility on TAL’s forward trends.
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