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On Monday, UBS updated its outlook on New Oriental Education (NYSE:EDU), raising its price target from $109.00 to $119.50, while maintaining a Buy rating on the stock. The company expects to announce its fiscal 2024 third-quarter financial results in late April, and remains positive about its performance.
UBS expects strong third-quarter sales growth of 49%, driven by significant advances in non-academic after-school tutoring (AST) and overseas test preparation and consulting services. The company predicts that non-academic AST will increase by nearly 90% year-on-year, and the overseas segment will increase by 43%, supporting overall revenue growth.
Educational services are expected to continue to be the main source of revenue for New Oriental Education, benefiting from rapid capacity development in this sector with favorable supply and demand conditions and a stable regulatory environment.
Additionally, UBS said its e-commerce platform, East Buy, maintained revenue growth of more than 60%, supported by positive signs from Douyin live streaming data that shows the channel is strengthening the East Buy brand. I expect that.
However, UBS revised its margin forecast for East Buy and adopted a more conservative stance, citing increased investment in streamers, new channels and stock keeping units (SKUs). As a result, adjustments have been made to both the third-quarter and full-year 2024 adjusted net income estimates.
Looking forward, UBS expects East Buy's contribution to New Oriental Education's adjusted net income to decline to less than 10% from fiscal 2025 onwards.
Despite these adjustments, UBS's stance on New Oriental Education remains favorable, with a compound annual growth rate (CAGR) of approximately 33% in earnings per share (EPS) from 2024 to 2026. It points to a clear growth trajectory for the education sector that is expected to reach. , which is expected to be a key factor in the stock's future performance.
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