On Monday, UBS has updated its outlook on New Oriental Education (NYSE:EDU), increasing the stock price target to $119.50 from the previous $109.00, while keeping a Buy rating on the shares. The firm anticipates the company to announce its third-quarter fiscal year 2024 results in late April and remains positive about its performance.
UBS forecasts a robust 49% revenue growth estimate for the third quarter, spurred by significant advancements in non-academic after-school tutoring (AST) and overseas test preparation and consulting services. The firm projects nearly 90% growth in non-academic AST and a 43% year-over-year increase in the overseas segment, underpinning the overall revenue expansion.
Education services are expected to remain the principal profit generator for New Oriental Education, benefiting from favorable supply and demand conditions in the sector and rapid capacity development in a stable regulatory climate.
Moreover, UBS anticipates that East Buy, the company's e-commerce platform, will sustain over 60% revenue growth, supported by positive signs from Douyin live streaming data indicating that this channel is enhancing the East Buy brand.
However, UBS has revised its margin expectations for East Buy, adopting a more conservative stance due to increased investments in streamers, new channels, and stock keeping units (SKUs). Consequently, adjustments have been made to the projected adjusted net profit estimates for both the third quarter and the full fiscal year 2024.
Looking ahead, UBS predicts that East Buy's contribution to New Oriental Education's adjusted net profit will decrease to below 10% from fiscal year 2025 onwards.
Despite these adjustments, UBS's stance on New Oriental Education remains favorable, citing a clear growth trajectory in education that is expected to drive a compound annual growth rate (CAGR) of approximately 33% in earnings per share (EPS) from fiscal years 2024 to 2026, which is anticipated to be a key factor in the stock's future performance.
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