TAL stock downgraded by Citi on balanced risk-reward outlook

Investing.com - Citi downgraded TAL International (NYSE:TAL) from Buy to Neutral on Monday, while lowering its price target to $11.54 from $13.40. The education company, currently trading at a P/E ratio of 76x and showing impressive gross profit margins of 53%, has seen its stock price decline significantly over the past three months.

The downgrade comes as Citi analyst Michelle Fang cited a balanced risk-reward profile for the education company, noting that while TAL’s value has a solid downside floor, it also faces limited near-term upside potential. According to InvestingPro data, TAL maintains strong financial health with a current ratio of 2.86x and holds more cash than debt on its balance sheet.

Citi’s analysis indicates TAL’s core value is supported by its Learning Services business, valued at $5.33 per ADR, and the company’s net cash position of $5.56 per ADR, establishing a firm value floor of $10.89 per share.

The primary concern remains TAL’s Content Solutions business, which focuses on learning devices, as persistent losses in this segment are expected to continue through fiscal year 2027, significantly impacting overall profitability.

Citi’s scenario-based valuation assigns only $0.65 per ADR to the Content Solution segment, capping the sum-of-the-parts valuation and suggesting limited upside potential for the stock.

In other recent news, TAL International reported first-quarter earnings and revenue that fell short of analyst expectations. The company posted adjusted earnings per American Depositary Share of $0.01, missing the consensus estimate of $0.09. Revenue increased by 42.1% year-over-year to $610.2 million, but it was below the projected $624.74 million. In response to these results, Morgan Stanley (NYSE:MS) reduced its price target for TAL International from $13.00 to $12.00, maintaining an Overweight rating, while JPMorgan downgraded the stock from Overweight to Neutral and slashed its price target to $11 from $16. Macquarie also downgraded TAL International from Outperform to Neutral, lowering its price target to $10.90 from $14.50, citing anticipated revenue growth moderation and pressure on profit margins.

JPMorgan analysts expressed concerns about the lack of transparency in TAL’s operational key performance indicators, making it difficult to analyze the company’s trends. Despite the earnings miss, Morgan Stanley remains optimistic about TAL’s growth prospects, projecting a compound annual growth rate of 41% in earnings from fiscal 2026 to fiscal 2029. TAL Education Group also announced an extension of its share repurchase program by 12 months, allowing repurchases of up to approximately $490.7 million of its common shares. These developments reflect a period of financial reassessment and strategic adjustments for TAL International.

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