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Morgan Stanley lifts New Oriental stock target on earnings projections

EditorNatashya Angelica
Published 17/10/2024, 16:22
EDU
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On Thursday, Morgan Stanley (NYSE:MS) demonstrated a positive stance on shares of New Oriental Education (NYSE:EDU) by increasing the stock's price target from $75.00 to $83.00. The firm sustained its Overweight rating on the company's shares.

The adjustment comes after a reassessment of the company's earnings projections for fiscal years 2025 to 2027 and beyond. Morgan Stanley has decided to eliminate the net cash discount that was previously set at 30%, aligning its valuation approach with that used for TAL and other companies in the internet sector.

As a result of this recalibration, Morgan Stanley's discounted cash flow (DCF)-based price target has been elevated, indicating a forecasted 25 times non-GAAP P/E for the fiscal year 2025. This increase in the base-case value has also affected the firm's bull-case and bear-case valuations for New Oriental Education, which are now set at $122 and $41 respectively.

The revised price target reflects Morgan Stanley's confidence in the education company's financial performance and growth potential. The Overweight rating suggests that the firm believes New Oriental Education's stock will outperform the average total return of the stocks covered by Morgan Stanley over the next 12 to 18 months.

Investors and market watchers will be paying close attention to New Oriental Education's stock performance following this updated guidance from one of the leading financial services companies.

In other recent news, New Oriental Education & Technology Group Inc. announced robust financial results with a significant rise in its top-line growth for the full-year 2024 fourth-quarter results, marking a 32.1% increase.

The company also revealed future expansion plans, aiming to increase its capacity by 20% to 25% in 2025. Despite facing profitability challenges, the outlook for fiscal year 2025 appears promising with an expected year-over-year US dollar revenue increase of 31-34% in the first quarter.

In terms of analyst evaluations, Citi maintained its Buy rating on New Oriental Education but reduced its price target to $106 from $127 after assessing the company's fiscal year 2024 performance. The firm emphasized New Oriental Education's strong market position and growth potential, despite the short-term effects of recent initiatives on the stock price.

Furthermore, New Oriental Education announced a special dividend of $0.60 per American Depositary Share (ADS) and a $300 million increase to its share repurchase program. This move is part of the company's broader strategy to enhance shareholder value. However, Citi noted that the immediate impact on the share price may be modest, depending on the pace of buyback execution.

Lastly, the company reported a decrease in net income but remains financially strong with plans to expand operating margins and invest in new technologies and tourism-related business in the forthcoming fiscal year. This information is based on recent developments and does not provide a comprehensive view of the company.

InvestingPro Insights

Morgan Stanley's optimistic outlook on New Oriental Education (NYSE:EDU) is further supported by recent financial data and analyst insights from InvestingPro. The company's market capitalization stands at $12.12 billion, reflecting its significant presence in the education sector.

InvestingPro Tips highlight EDU's strong financial position, noting that it "holds more cash than debt on its balance sheet" and has "liquid assets exceed short term obligations." This financial stability aligns with Morgan Stanley's decision to eliminate the net cash discount, potentially contributing to the increased price target.

The company's impressive growth is evident in its revenue figures, with a 43.89% increase in the last twelve months as of Q4 2024. This robust growth trajectory supports Morgan Stanley's bullish stance on EDU's future earnings potential.

InvestingPro Data shows a P/E ratio of 40.82, which, when considered alongside the PEG ratio of 0.46, suggests that the stock may be undervalued relative to its growth prospects. This valuation perspective aligns with Morgan Stanley's increased price target and Overweight rating.

For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips for New Oriental Education, providing a deeper understanding of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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