On Thursday, Citi maintained its Buy rating on shares of New Oriental Education (NYSE:EDU) but reduced its price target to $106 from $127. The adjustment comes after evaluating the company's fiscal year 2024 performance and future projections. New Oriental Education's fiscal year 2024 results revealed strong top-line growth, yet the company faced challenges in profitability.
Despite these headwinds, the outlook for fiscal year 2025 seems promising, with an expected year-over-year US dollar revenue increase of 31-34% in the first quarter and a potential 200 basis points margin expansion.
The core educational operations of New Oriental Education reported an 11% non-GAAP operating profit margin (OPM) in FY24, suggesting significant growth potential. This optimism is supported by an aggressive capacity expansion strategy, aiming for a 20-25% increase, and improving utilization rates, especially in the high-growth K9 segment.
The company's shift towards an omnichannel model is seen as a strategic move that, despite presenting short-term challenges, is anticipated to create substantial long-term value.
Citi's revised price target of $106 reflects an updated sum-of-the-parts (SOTP) valuation, acknowledging the robust growth potential of New Oriental Education's core business and the strategic value of East Buy, even as the company navigates through ongoing transformation challenges. The firm reaffirms its positive stance on New Oriental Education, positioning it at the top of its preference list in the K12 (NYSE:LRN) after-school tutoring (AST) sector, above competitors like TAL.
In other recent news, New Oriental Education & Technology Group Inc. reported a significant rise in its topline growth for the full-year 2024 fourth-quarter results, with an increase of 32.1%. Despite a decrease in net income, the company's financial position remains strong, and it plans to expand operating margins and invest in new technologies and tourism-related business in the upcoming fiscal year.
Revenue from new initiatives, including non-academic tutoring and the Intelligent Learning System and Device business, grew by 50% and 57%, respectively. Citi maintained its Buy rating on New Oriental shares but reduced its price target to $106 from $127, after evaluating the company's fiscal year 2024 performance and future projections.
The company is expected to see a 31-34% year-over-year US dollar revenue increase in the first quarter of 2025 and a potential 200 basis points margin expansion. Furthermore, New Oriental plans to increase its capacity by 20% to 25% in 2025. These developments highlight New Oriental's robust growth and expansion plans.
InvestingPro Insights
As New Oriental Education (NYSE:EDU) continues to navigate through its transformative phase, InvestingPro data highlights a market capitalization of $10.4 billion, underscoring the company's substantial presence in the market. The firm's aggressive share buyback strategy, as indicated by one of the InvestingPro Tips, demonstrates management's confidence in the company's value. This is further supported by the company's impressive gross profit margin of 52.45% over the last twelve months as of Q4 2024, hinting at the efficiency of its operational model.
Another notable InvestingPro Tip is the company's low Price to Earnings (P/E) ratio of 38.47, which becomes even more attractive when adjusted for near-term earnings growth, dropping to 34.63. This suggests that the stock may be trading at a discount relative to its earnings potential. Furthermore, with the company holding more cash than debt on its balance sheet, its financial stability could be a reassuring factor for investors.
Despite a recent decline in stock price, with a 10.68% drop over the past week, analysts remain optimistic about New Oriental Education's profitability in the upcoming year. Investors seeking additional insights can find a total of 12 InvestingPro Tips on https://www.investing.com/pro/EDU, which provide a more comprehensive understanding of the company's financial health and market position.
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