UBS Increases New Oriental Education Stock Target to $119.50, Reaffirms Buy Rating –

UBS Increases New Oriental Education Stock Target to 9.50, Reaffirms Buy Rating –

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On Monday, UBS updated its outlook on New Oriental Education (NYSE:EDU), raising the stock’s price target to $119.50 from $109.00, while maintaining a Buy rating on the actions. The company expects the company to announce its third quarter fiscal 2024 results in late April and remains positive about its performance.

UBS forecasts a strong revenue growth estimate of 49% for the third quarter, driven by significant progress in non-academic after-school tutoring (AST) and overseas test preparation and consulting services. The company forecasts nearly 90% growth in non-academic AST and a 43% year-over-year increase in the overseas segment, supporting overall revenue expansion.

Educational services are expected to remain the main profit generator for New Oriental Education, benefiting from favorable supply and demand conditions in the sector and rapid capacity development within a stable regulatory climate.

Additionally, UBS expects East Buy, the company’s e-commerce platform, to maintain revenue growth of more than 60%, supported by positive signs from Douyin live streaming data that this channel is strengthening East Buy brand.

However, UBS revised its margin expectations for East Buy, taking a more conservative stance due to increased investments in streamers, new channels and stock-keeping units (SKUs). As a result, adjustments have been made to the projected adjusted net income estimates for the third quarter and full fiscal year 2024.

Looking ahead, UBS expects East Buy’s contribution to New Oriental Education’s adjusted net profit to decline to less than 10% starting in fiscal 2025.

Despite these adjustments, UBS’s stance on New Oriental Education remains favorable, citing a clear growth trajectory in education that is expected to generate a compound annual growth rate (CAGR) of approximately 33% of earnings per share (EPS) between fiscal years 2024 and 2026, which is expected to be a key factor in the stock’s future performance.

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