The second trading day of the week was a good one for New Oriental Education & Technology Group (EDU +0.26%) shareholders. On the back of an analyst's recommendation upgrade, their stock surged more than 13% higher in price. That absolutely crushed the S&P 500's (^GSPC +0.28%) 1.1% increase.
Inexpensive and attractive, says prognosticator
That move was made by J.P. Morgan, in the person of analyst DS Kim. That morning, Kim changed his recommendation on New Oriental to overweight (buy, in other words) from his previous neutral. His new price target is $62 per share, which, even after the Tuesday price pop, is almost 12% over the stock's current level.
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According to reports, Kim's new view isn't based on new estimates -- he maintained his existing projections -- rather, its attractive valuation following a sustained sell-off.
He also believes New Oriental is entering its fiscal 2026 with substantially better prospects than in the previous year. Finally, he wrote that he expects the company to significantly increase its returns to shareholders.
NYSE: EDU
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Hopefully, the third time's the charm
New Oriental is surely glad to be past fiscal 2025 (its 2026 started on June 1). The latest two earnings reports for the former year weren't inspiring, to put it mildly -- in both, the company badly missed on the consensus analyst estimates for net income. On top of that, in only one did it beat on revenue, and at that, only slightly ($1.04 billion versus the $1.03 collective estimate for quarter two).
While the stock is relatively cheap now, I'm not convinced it's an irresistible bargain. Those earnings misses were substantial and concerning. Meanwhile, the Chinese economy isn't as high-growth as it once was.
Investors will be expecting better performance from the company when it reports its final quarter of fiscal 2025; this hasn't been officially scheduled yet, but should occur in mid-to-late July.
