UPDATE: Goldman Sachs Downgrades Xueda Education Group to Sell on Utilization Challenges

Goldman Sachs reduced its rating on Xueda Education Group

from Neutral to Sell and reduced its price target to $2.60. Goldman Sachs commented, "Xueda expanded rapidly after the consultant disruptions in 2H11, but it has encountered utilization difficulties again, leading to 3Q earnings that came in below expectations. We are lowering FY12E-FY14E EPS by 40%/43%/48%, cutting our 12-m TP by 52% to US$2.60 (0.5X PEG), and downgrading the shares to Sell. We could turn positive if Xueda scales back unprofitable expansion and improves its gross margin again, particularly during the seasonally weak 3Q-4Q." Xueda Education Group closed at $2.70 on Monday.