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

China’s largest private education provider delivered another strong quarter. Analysts have been raising their price and earnings estimates after solid results, sending the stock back to a Zacks rank #1 (Strong Buy).

About the Company

Founded in 1993, New Oriental Education & Technology Group (EDU) is the largest provider of private educational services in China with over 24.2 million student enrollments. The company IPO’d on the NYSE in September 2006.

Headquartered in Beijing, New Oriental group currently has a network of 727 schools/learning centers and over 17,700 teachers in 54 cities. Additional it has a large online network with over 12.9 million users.

They provide a comprehensive range of educational products for students of all ages, including POP kids programs, summer camps, private schools, after school tutoring, adult English as well as domestic and overseas entrance tests preparation.

Excellent Quarterly Results

The company reported its Q3 FY 2016 (ended February 29) results on April 19.  Revenue for the quarter increased 20.6% year-over-year to $346.9 million. Net income increased 16.8% year-over-year to $48.4 million. Strong growth was mainly attributable to the ongoing increases in total enrollments. Their K-12 all-subjects after-school tutoring business continued to perform well, with gross revenue up 35% year over year and enrollment up 31% year over year.

Per CEO, “we continued to make solid progress on all fronts given improved product mix, positive market dynamics and increased efficiency in operations.”

Strong Guidance

New Oriental expects fourth fiscal quarter total revenues to be in the range of $378.1 million to $391.3 million, representing year-over-year growth in the range of 15% to 19%

Rising Estimates

After strong results, analysts have been raising their estimates for the company. Zacks Consensus Estimates for current and the next fiscal year have gone up to $1.47 per share and $1.82 per share respectively, from $1.39 and $1.74, before the results. Rising estimates sent the stock to a Zacks Rank # 1 (Strong Buy).

Investment by Tencent

In February, the company announced that an affiliate of Tencent has agreed to invest about $50 million in its online education platform, Koolearn.com. Tencent is a leading internet company in the world and its investment should further help drive growth of the online platform.

The Bottom Line

The company 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. Strong brand awareness and pricing power will continue to drive profits going forward for this company.

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