UPDATE: Morgan Stanley Upgrades New Oriental Education (EDU) to Overweight

August 30, 2021 4:02 AM EDT
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Price: $1.73 +2.37%

Rating Summary:
    13 Buy, 11 Hold, 3 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 29 | Down: 32 | New: 34
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(Updated - August 30, 2021 4:50 AM EDT)

Morgan Stanley analyst Sheng Zhong upgraded New Oriental Education (NYSE: EDU) from Equalweight to Overweight with a price target of $3.50 (from $8.60).

The analyst comments "The K9 business has been hit by the 'double reduction' regulation, but the company has ample cash to expand into new businesses, such as non-academic tutoring. That said, it will take time to grow the new businesses, and competition will intensify. We have removed all K9 revenue from our model from September and part of the revenue from the summer, as K9 will be not-for-profit and taken out of the listco. K9 previously contributed ~50% of EDU's total revenue. We assume high school tutoring will remain in the listco, as well as non-K12 overseas and adult tutoring, but revenue growth will slow as competition intensifies. We forecast the company will be loss-making in F22 and F23 given additional expenses to cover employee redundancies and center closures. We cut our PT to US$3.5 after excluding the value of the K9 business, applying 1x F23e EV/sales to high school tutoring and 2x F23e EV/sales to the remaining overseas business and other businesses, as well as the new small-scale new businesses. We see share price upside potential from here and move to OW."

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 $2.00 yesterday.


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