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 26.6 million student enrollments. The company IPO’d on the NYSE in September 2006.

Headquartered in Beijing, New Oriental group currently has a network of 771 schools/learning centers and over 19,700 teachers in 56 cities. Additionally, it has a large online network with over 14.2 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 Q1 FY 2017 (ended August 31) results on October 25.  Revenue for the quarter increased 16.5% year-over-year to $534.1 million. Net income increased 9.7% year-over-year to $141.1 million.

Strong growth was mainly attributable to 31.2% increase in total enrollments. Their K-12 all-subjects after-school tutoring business continued to perform well, with revenue up 28% year over year and enrollment up 46% year over year.

Strong Guidance

The management expects net revenues in the second quarter of fiscal year 2017 (ending November 31, 2016) to be in the range of $324.6 million to $335.1 million, representing year-over-year growth in the range of 17% to 21%.

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 $1.76 per share and $2.29 per share respectively, from $1.75 and $2.18, before the results. Rising estimates sent the stock to a Zacks Rank # 1 (Strong Buy).

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.

New Oriental 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 boost revenues in the coming years.

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