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New Oriental Education & Technology Group Inc ADR EDU

Morningstar Rating
$96.04 +2.51 (2.68%)
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Company Report

New Oriental Earnings: Strong Revenue Growth Beats Expectation but Shares Are Expensive

New Oriental's fiscal 2024 second-quarter (ending November 2023) result beat our expectation. Revenue in the quarter increased by 36% year on year, 8% higher than the upper end of management guidance. In addition, management guided for revenue to grow 42%-45% year on year for the third quarter. After revising our revenue growth assumption to 35% from 27% for 2024, we raise our 2024 revenue forecast to USD 4.0 billion from USD 3.8 billion, and our net income forecast to USD 353 million, from USD 328 million. We also raise our net income estimates by 16%-19% for fiscal 2025 to 2028. As a result, we increase our fair value estimate to USD 51 from USD 47. New Oriental’s share price closed 49% above our new fair value estimate on Jan 24. We think investors are overly optimistic with its growth and margin outlook. To justify the share price, we think New Oriental’s revenue needs to grow at 25.0% CAGR from fiscal 2023 to 2028 while adjusted operating margin expands to 16.8% by 2028 compared with our forecast of 14.5% revenue CAGR and 13.8% adjusted operating margin.

Price vs Fair Value

EDU is trading at a 88% premium.
Price
$96.04
Fair Value
$86.00
Uncertainty
Very High
1-Star Price
$91.86
5-Star Price
$83.80
Economic Moat
Vjd
Capital Allocation
Cjsyxzd

Bulls Say, Bears Say

Bulls

The margin trend of New Oriental's new businesses is better than expected.

Bears

High school academic after-school tutoring as a for-profit business carries very high policy risk.

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News

Trading Information

Previous Close Price
$93.53
Day Range
$94.6797.29
52-Week Range
$33.9897.29
Bid/Ask
$96.02 / $97.20
Market Cap
$15.90 Bil
Volume/Avg
1.2 Mil / 1.9 Mil

Key Statistics

Price/Earnings (Normalized)
40.80
Price/Sales
4.48
Dividend Yield (Trailing)
Dividend Yield (Forward)
Total Yield
1.21%

Company Profile

New Oriental is a leading private education provider in China. K-9 academic after-school tutoring used to account for 50%-60% of New Oriental’s revenue before the regulatory crackdown in 2021. After terminating its K-9 academic after-school tutoring business, New Oriental has identified a few new initiatives such as nonacademic tutoring and intelligent learning systems and devices. The remaining businesses include high school academic after-school tutoring and overseas-related test preparation and consulting business. It also owns 55% of East Buy (HKG: 01797), a market leader in livestreaming e-commerce.
Sector
Consumer Defensive
Industry
Education & Training Services
Stock Style Box
Large Growth
Total Number of Employees
50,438

Competitors

Valuation

Metric
EDU
TAL
02001
Price/Earnings (Normalized)
40.80151.434.99
Price/Book Value
4.152.611.07
Price/Sales
4.486.891.71
Price/Cash Flow
8.1631.703.83
Price/Earnings
EDU
TAL
02001

Financial Strength

Metric
EDU
TAL
02001
Quick Ratio
1.682.800.28
Current Ratio
1.873.220.33
Interest Coverage
6.74
Quick Ratio
EDU
TAL
02001

Profitability

Metric
EDU
TAL
02001
Return on Assets (Normalized)
6.13%0.51%8.05%
Return on Equity (Normalized)
10.72%0.65%21.41%
Return on Invested Capital (Normalized)
9.06%−1.55%13.03%
Return on Assets
EDU
TAL
02001
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Education & Training Services Industry Comparables

Ticker
Name
Morningstar Rating for Stocks
Economic Moat
Market Cap
NWOEF
New Oriental Education & Technology Group Inc Ordinary SharesQbfrz$15.9 Bil
TAL
TAL Education Group ADRWvmb$9.5 Bil
LOPE
Grand Canyon Education IncTklyy$4.0 Bil
IDPUF
IDP Education LtdPqvtjw$3.5 Bil
GHC
Graham Holdings CoWhgyx$3.1 Bil
STRA
Strategic Education IncHzj$2.7 Bil
LRN
Stride IncKrm$2.7 Bil
COUR
Coursera IncJsk$2.5 Bil
LAUR
Laureate Education Inc ShsHlybv$2.1 Bil

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