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On Wednesday, JPMorgan analysts downgraded New Oriental Education & Technology Group (9901:HK) (NYSE:EDU) stock from 'Overweight' to 'Neutral,' significantly reducing the price target from HK$66.00 to HK$40.00. The revision comes after the company reported four consecutive quarters of guidance misses and estimate reductions, which have eroded investor confidence in the stock.
The analysts acknowledged New Oriental's standing as a high-quality company with a strong brand and faculty in China's tutoring sector, anticipating a profit growth of over 30% for fiscal years 2025 to 2027. The company maintains impressive financial health with strong fundamentals, including a 52.8% gross profit margin and more cash than debt on its balance sheet.
Despite this positive outlook, the persistent underperformance in guidance has led to a cautious stance from JPMorgan. InvestingPro subscribers have access to 12 additional key insights about EDU's financial position.
In detailing the downgrade, the analysts expressed the need for New Oriental to deliver several "clean" quarters to rebuild market confidence. They conveyed regret in moving to the sidelines but deemed it necessary due to the recent trajectory of the company's performance.
The forward earnings per share (EPS) estimates were cut by more than 20%, with the price target reduction reflecting lower confidence in the company's earnings. The new target is based on a 15 times target price-to-earnings (P/E) ratio, down from the previous 20 times.
JPMorgan suggests that investors, except those with a horizon of more than a year, should wait for a positive inflection in consensus estimates, which could potentially occur in the next quarter or two, before revisiting the stock.
In other recent news, New Oriental Education has been the subject of several important developments. Morgan Stanley (NYSE:MS) downgraded the company's stock rating to Equalweight, citing concerns over the company's weaker-than-expected third-quarter fiscal year 2025 guidance and a downward revision of its full fiscal year 2025 outlook. Despite this, New Oriental Education maintains a strong financial health score with more cash than debt on its balance sheet.
BofA Securities also adjusted their financial outlook for the company, reducing the stock's price target from $82.90 to $68.60, while maintaining a Buy rating. This decision followed New Oriental Education's latest quarterly results, which surpassed the company's revenue projections with a robust year-over-year increase of 31% in core revenue.
Jefferies analyst firm revised its price target for New Oriental Education, lowering it to $73.00 from the previous target of $93.00, while maintaining a Buy rating. This adjustment reflects the challenges faced by the company but also leaves room for future growth opportunities.
Finally, New Oriental Education reported second-quarter earnings which did not meet analyst expectations. The company posted adjusted earnings per American depositary share of $0.22 for the fiscal second quarter, falling short of the consensus estimate of $0.32. However, the company's revenue rose 19.4% year-over-year to $1.04 billion, slightly surpassing the expected $1.03 billion.
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