Key insights
- Goldman Sachs upgraded New Oriental Education (EDU) to Buy, citing a deeply undervalued stock at 3x 2026 P/E (ex-cash), significantly below peers. The company holds substantial net cash (75% of market cap) and offers a 7% shareholder yield via dividends/buybacks. Goldman forecasts strong revenue and EPS growth driven by K-12, college prep, and East Buy segments, with margin expansion expected. This upgrade suggests potential positive sentiment for Chinese education stocks and companies with strong balance sheets trading at low multiples.
Investing.com - Goldman Sachs upgraded New Oriental Education & Technology (NYSE:EDU) to Buy from Neutral on Wednesday and set a price target of $65.
The firm said the company trades at approximately 3 times its calendar year 2026 price-to-earnings ratio excluding net cash, the lowest level among more than 140 China internet and consumer stocks under Goldman Sachs coverage. New Oriental Education holds about $5.4 billion in net cash as of its third fiscal quarter 2026 ended in February 2026, equivalent to roughly 75% of its market capitalization.
The company trades at 10 to 11 times 12-month forward price-to-earnings based on Goldman Sachs estimates and Bloomberg consensus, or 1.5 standard deviations below its historical average. Such valuations have only appeared twice in the past two decades, in 2012 following a short-selling report and in 2021-2022 due to policy changes. At the current price of $45.20, InvestingPro analysis suggests the stock is undervalued, with the company maintaining impressive gross profit margins of 55%.
New Oriental Education committed to returning no less than $490 million annually through dividends or share repurchases over the next three years, representing a 7% shareholder return yield. Goldman Sachs forecasts 9% revenue growth, 19% non-GAAP operating profit growth, and 15% non-GAAP earnings per share growth from calendar year 2025 through 2027.
The firm expects revenue growth to be driven by 13% and 11% compound annual growth rates in K-12 and college test preparation segments respectively, and 16% growth from East Buy. Goldman Sachs projects fiscal year 2027 to show 1.5 percentage points of year-over-year non-GAAP operating margin expansion versus 0.6 percentage points in fiscal year 2026. InvestingPro Tips highlight that management has been aggressively buying back shares while holding more cash than debt—two of 12 exclusive tips available to subscribers.
In other recent news, New Oriental Education & Technology Group reported impressive financial results for the third quarter of fiscal year 2026. The company achieved earnings per share of $0.95, surpassing the forecasted $0.84. Additionally, revenue exceeded expectations, reaching $1.42 billion against a projected $1.36 billion. BofA Securities responded to these results by raising its price target for New Oriental Education to $73.20 from $71.30, maintaining a Buy rating. The firm’s decision was influenced by a 19% year-over-year revenue growth in the February quarter, which outperformed the company’s guidance of 11% to 14%. This growth was primarily driven by the test preparation and EB segments. Furthermore, the non-GAAP operating margin expanded by 2.3 percentage points, surpassing the company’s guidance of 1 percentage point. These developments reflect positively on New Oriental’s financial health and operational efficiency.
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