Investors in New Oriental Education & Technology Group Inc. (NYSE:EDU) had a good week, as its shares rose 2.9% to close at US$114 following the release of its quarterly results. Revenues were US$923m, approximately in line with expectations, although statutory earnings per share (EPS) performed substantially better. EPS of US$0.86 were also better than expected, beating analyst predictions by 15%. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Following the latest results, New Oriental Education & Technology Group's 26 analysts are now forecasting revenues of US$4.75b in 2021. This would be a huge 31% improvement in sales compared to the last 12 months. Per-share earnings are expected to jump 37% to US$3.85. In the lead-up to this report, the analysts had been modelling revenues of US$4.95b and earnings per share (EPS) of US$4.10 in 2021. The analysts are less bullish than they were before these results, given the reduced revenue forecasts and the minor downgrade to earnings per share expectations.
The analysts made no major changes to their price target of US$148, suggesting the downgrades are not expected to have a long-term impact on New Oriental Education & Technology Group'svaluation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic New Oriental Education & Technology Group analyst has a price target of US$171 per share, while the most pessimistic values it at US$130. This is a very narrow spread of estimates, implying either that New Oriental Education & Technology Group is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's clear from the latest estimates that New Oriental Education & Technology Group's rate of growth is expected to accelerate meaningfully, with the forecast 31% revenue growth noticeably faster than its historical growth of 23%p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 19% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect New Oriental Education & Technology Group to grow faster than the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for New Oriental Education & Technology Group. Regrettably, they also downgraded their revenue estimates, but the latest forecasts still imply the business will grow faster than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for New Oriental Education & Technology Group going out to 2024, and you can see them free on our platform here.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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