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On Wednesday, Goldman Sachs revised the price target for New Oriental Education & Technology Group Inc. (NYSE:EDU) stock, bringing it down to $57 from the previous $83. Despite the reduction, the firm retained a Buy rating on the company's shares. This adjustment came after the company's American Depositary Receipt (ADR) experienced a significant drop of 23% on Tuesday, January 21.
The decline in the ADR's value followed the company's announcement of weaker-than-expected revenue guidance for the February quarter, projecting year-over-year growth of 18-21%, which is lower than the previously anticipated 25-31% according to Goldman Sachs and Visible Alpha Consensus Data.
Despite the guidance reduction, InvestingPro analysis indicates the company maintains strong financial health with impressive gross profit margins of 52.8% and more cash than debt on its balance sheet. Additionally, New Oriental Education lowered its forecast for fiscal year 2025 core revenue growth to at least 25% year-over-year from an earlier estimate of around 30%.
Goldman Sachs had anticipated a 28% year-over-year increase in EDU's core revenue for fiscal year 2025, which has now been adjusted to 27%. The softened guidance reflects the impact of a challenging macroeconomic environment and reduced consumer spending on high-end education services, including overseas study programs, one-on-one high school tutoring, and cultural tourism.
The company's management acknowledged the need to balance near-term margin growth with the pursuit of stronger revenue expansion. Strategies under consideration include adjusting the overseas test preparation business to focus more on younger students, which may result in a temporary margin impact.
Additionally, investments in cultural tourism are expected to contribute to a 2-3 percentage point increase in core revenue growth for fiscal years 2025-2026, at the expense of approximately a 1 percentage point decrease in non-GAAP operating margin.
In other recent news, New Oriental Education & Technology Group has seen significant changes in analyst ratings and revenue forecasts. The company's stock rating was downgraded from Outperform to Underperform by Macquarie, which also slashed its price target. This follows a revised financial outlook by the company, including a more conservative revenue growth target due to the impact on its overseas test preparation and tourism segments.
JPMorgan and Morgan Stanley (NYSE:MS) also downgraded New Oriental's stock rating to 'Neutral' and 'Equalweight' respectively, due to concerns over the company's guidance misses and estimate reductions. Despite these downgrades, New Oriental Education continues to show strong financial health.
New Oriental's recent earnings reports have painted a mixed picture. The company reported adjusted earnings per American depositary share of $0.22 for the fiscal second quarter, falling short of the consensus estimate of $0.32. However, its revenue rose 19.4% year-over-year to $1.04 billion, slightly surpassing the expected $1.03 billion.
Analyst firms BofA Securities and Jefferies have adjusted their financial outlook for New Oriental Education. BofA Securities reduced the stock's price target from $82.90 to $68.60, while Jefferies revised its price target to $73.00 from the previous $93.00.
Despite these adjustments, both firms maintain a Buy rating, indicating their belief in the company's potential value. These are recent developments and it's important for investors to keep an eye on future announcements from the company and its analysts.
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