New Oriental Education & Technology: Zacks’ Bull of the Day Play

After an excellent quarterly performance, estimates for China’s top tutoring company have been on the uptrend, sending the stock back to Zacks rank #1 (Strong Buy) last week.

About the Company

Founded in 1993, New Oriental Education & Technology Group ((EDUSnapshot Report)) is the largest provider of private educational services in China with about 20.8 million student enrollments. The company IPO’d on the NYSE in September 2006.

Headquartered in Beijing, New Oriental group currently has a network of 722 schools/learning centers and over 17,000 teachers in 50 cities. Additionally, it has a large online network with over 10.4 million users.

Excellent Quarterly Results

The company reported its Q3 FY 2015 results on April 21.  Revenue for the quarter increased 13.1% year-over-year to US$287.7 million. The increase was mainly driven by strong performance of K-12 after-school tutoring business, which grew 22% year-over-year and accounted for almost 50% of total revenues.

Total enrollments for the quarter were flat year-over-year, but according to the management this was mainly due to the timing of the Chinese New Year in 2015, which delayed enrollments for spring classes. They opened 20 new centers during the quarter and closed 11, resulting in a net addition of nine.

Net income for the quarter was US$41 million, up 2.6% from a year ago. Net income per share came in at $0.26, significantly ahead of the Zacks Consensus Estimate of $0.20 per share.

Strong Guidance

The company expects total revenue in the fourth quarter of 2015 to be in the range of US$322 million to US$333.5 million, up about 12% to 16%, from the same quarter in 2014.

Rising Estimates

After strong results, analysts have been raising their estimates for the company. Zacks Consensus Estimates for current and the next fiscal year now stand at $1.23 per share and $1.48 per share respectively, up from $1.13 per share and $1.41 per share, 30 days ago.

The Bottom Line

EDU has a recognized brand name and a leadership position in areas like overseas test prep, English language tutoring, overseas study consulting and K-12 after school tutoring. Private education industry in China has been growing rapidly thanks mainly to rising incomes of the expanding middle class in the country.

The group is also a pioneer in the online education industry in China. Of late, they have increased their spending on their online education platform, which is expected to propel earnings growth in the coming years.

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