New Oriental Education & Technology Group Inc. (NYSE:EDU) shares fell 5.4% to US$133 in the week since its latest second-quarter results. It looks like a credible result overall - although revenues of US$785m were what analysts expected, New Oriental Education & Technology Group surprised by delivering a (statutory) profit of US$0.34 per share, an impressive 467% above what analysts had forecast. Earnings are an important time for investors, as they can track a company's performance, look at what top analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we gathered the latest post-earnings forecasts to see what analysts' statutory forecasts suggest is in store for next year.
After the latest results, the 26 analysts covering New Oriental Education & Technology Group are now predicting revenues of US$3.95b in 2020. If met, this would reflect a solid 13% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to soar 24% to US$3.16. Before this earnings report, analysts had been forecasting revenues of US$3.95b and earnings per share (EPS) of US$3.00 in 2020. So the consensus seems to have become somewhat more optimistic on New Oriental Education & Technology Group's earnings potential following these results.
The consensus price target rose 11% to US$155, suggesting that higher earnings estimates flow through to the stock's valuation as well. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on New Oriental Education & Technology Group, with the most bullish analyst valuing it at US$182 and the most bearish at US$123 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await New Oriental Education & Technology Group shareholders.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. It's pretty clear that analysts expect New Oriental Education & Technology Group's revenue growth will slow down substantially, with revenues next year expected to grow 13%, compared to a historical growth rate of 23% over the past five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 19% per year. So it's pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than New Oriental Education & Technology Group.
The Bottom Line
The biggest takeaway for us from these new estimates is that the consensus upgraded its earnings per share estimates, showing a clear improvement in sentiment around New Oriental Education & Technology Group's earnings potential next year. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. Analysts also upgraded their price target, suggesting that analysts believe the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn't be too quick to come to a conclusion on New Oriental Education & Technology Group. Long-term earnings power is much more important than next year's profits. 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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