Goldman Sachs Downgrades New Oriental Education (EDU) to Neutral

Goldman Sachs analyst Timothy Zhao downgraded New Oriental Education (NYSE: EDU) from Buy to Neutral with a price target of $50.00 (from $58.00).

The analyst comments: "After three decades of rapid scale expansion (revenue 29% CAGR in FY03-21 and 28% CAGR in FY23-25), we expect a notably slower 9% revenue CAGR in FY25-28E on: 1) K12 revenue growth moderation at 14% CAGR as high school/primary school revenue already exceeds/caught up with the prior peak level in FY21, 2) likely persistent revenue pressure on overseas related segments (-7% CAGR in FY25-28E), 3) lack of track record in scaling up new initiatives (e.g. East Buy, tourism). While we forecast 13% EPS CAGR in FY25-28E, we see uncertainties in our outer-year forecasts considering the possible deflationary effect from GenAI-based offerings either by EDU or by its competitors. Meanwhile, as the equity story shifts from growth to value, its new 3-year shareholder return program (i.e. total dividend and/or share repurchases no less than 50% of GAAP net profit in the prior fiscal year, or no less than US$186mn for FY26 equivalent to 2.5% of market cap vs. US$504mn returned to shareholders in FY25) does not appear to be particularly appealing in terms of a share price catalyst based on our conversations with investors."

For an analyst ratings summary and ratings history on New Oriental Education click here. For more ratings news on New Oriental Education click here.

Shares of New Oriental Education closed at $46.62 yesterday.

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