Market Overview

New Oriental Education Earnings Preview: More Strong Sales Growth Expected

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New Oriental Education & Technology Group (NYSE: EDU) is scheduled to report fourth-quarter fiscal 2011 results Monday, July 18, before the markets open. The company has bucked the trend of declines in other Chinese education providers, and it has also seen strong revenue growth in recent quarters. Investors will be looking for the trend to continue.

Analysts expect the Beijing-based education provider to report quarterly earnings of $0.23 per share on revenues of $119.9 million. That is an increase from $0.15 per share and $86.6 million in the same period of last year.

Full-year earnings are anticipated to have risen 19.6% from a year ago to $2.50 per share, while revenues are expected to have increased 38.5% to $535.2 million. Neither the full-year nor the fourth-quarter EPS estimates have changed in the past 60 days.

The Company

New Oriental Education & Technology Group provides private educational services primarily to customers in the People's Republic of China. Its educational programs, services, and products include English and other foreign language training, test preparation courses for admissions and assessment tests, primary and secondary school education, development and distribution of educational content, as well as online education. New Oriental Education also operates more than 20 bookstores.

During the three months that ended in May, Goldman Sachs upgraded the stock to Conviction Buy, citing cost controls and anticipated margin recovery. Oppenheimer raised its price target following the better-than-expected third-quarter results, which also sent the share price to a new high for the year.

Looking Ahead

Analysts so far expect to see strong sequential and year-over-year growth of both earnings and revenue in the current quarter. Note that analysts have underestimated per-share earnings in four of the past five quarters, but the 5.9% earnings miss did come in the last fiscal first quarter.

Performance

The long-term EPS growth rate forecast is 26.5%, much higher than the industry average and for the S&P. However, the price-to-earnings ratio and the PEG ratio are also greater than the industry average. But of the 11 analysts following the stock, six of them rate EDU a Buy. Analysts' mean price target (where they expect the stock is headed) is $125.00 per share.

The share price opened Friday at $118.18. Shares pulled back in June but have recovered and are now 12.3% higher than at the beginning of the year. During that time, the stock has outperformed competitors China Distance Education (NYSE: DL) and Princeton Review (NASDAQ: REVU).

Action Items:

Bullish: Traders interested in exchange traded funds that are invested in EDU might want to consider the following trades:

  • PowerShares Golden Dragon Halter USX China Portfolio (NYSE: PGJ)
  • SPDR S&P China ETF (NYSE: GXC)
  • EG Shares Emerging Markets Consumer ETF (NYSE: ECON)

Bearish: Traders who prefer American education companies may want to consider these alternate positions:

  • Education Management (NASDAQ: EDMC): +43.0% year to date
  • Apollo Group (NASDAQ: APOL): +24.4% in the past year
  • Career Education (NASDAQ: CECO): +11.1% in the past year

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

 

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