With Others Running Away, Wells Fargo Defends "Short Target" New Oriental Education (EDU)
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Price: $52.54 +0.40%
Rating Summary:
16 Buy, 11 Hold, 1 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
Rating Summary:
16 Buy, 11 Hold, 1 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
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While a number of other brokers have cut-and-run on New Oriental Education (NYSE: EDU) after SEC charges, Wells Fargo is out in defense of the company which was clobbered Wednesday after a negative Muddy Waters report and a recent SEC investigation.
According to Wells, conversations with competitors suggest the company is being truthful in today's rebuttal about franchising claims. "Not one was aware of any historical franchising and we believe that given the intensity of the competition in the Chinese education market, as well as the amount of employee movement between companies, this practice, on any material scale, would have been difficult to hide," the analyst said.
On the other charges related to tax treatment, the legal status of assets, proper documentation of transfer pricing, and the risk associated with the company's variable interest entity (VIE) structure, the firm comments: "all seem a matter of legal opinion in a regulatory environment that is frequently unclear, but rarely unfriendly and do not trouble us.
Wells does agree with Citron that restructuring the VIE to include only those operations that are legally required to be in Chinese hands, placing other functions directly in the hands of shareholders, would materially reduce risk and, in our opinion, significantly enhance the value of the shares.
The firm reiterated their Outperform rating and $24.00 to $31.00 valuation range.
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 are up 24 percent to $11.76.
According to Wells, conversations with competitors suggest the company is being truthful in today's rebuttal about franchising claims. "Not one was aware of any historical franchising and we believe that given the intensity of the competition in the Chinese education market, as well as the amount of employee movement between companies, this practice, on any material scale, would have been difficult to hide," the analyst said.
On the other charges related to tax treatment, the legal status of assets, proper documentation of transfer pricing, and the risk associated with the company's variable interest entity (VIE) structure, the firm comments: "all seem a matter of legal opinion in a regulatory environment that is frequently unclear, but rarely unfriendly and do not trouble us.
Wells does agree with Citron that restructuring the VIE to include only those operations that are legally required to be in Chinese hands, placing other functions directly in the hands of shareholders, would materially reduce risk and, in our opinion, significantly enhance the value of the shares.
The firm reiterated their Outperform rating and $24.00 to $31.00 valuation range.
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 are up 24 percent to $11.76.
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