AI-Powered Tutoring And Omnichannel Systems Will Revitalize Education

Key Takeaways

• Expansion into AI-driven learning and new educational services is driving demand, revenue growth, and margin improvement while diversifying offerings to reduce regulatory risk.
  
• Enhanced operational efficiency and active capital returns are boosting profitability and shareholder value through increased margins, predictable cash flow, and share buybacks.
  
• Intensifying competition, regulatory risks, and slowing growth in new ventures may constrain revenue, threaten margins, and limit long-term earnings expansion despite ongoing cost controls.

Catalysts

New Oriental Education & Technology Group Inc.

• Strong momentum and high year-over-year growth in new non-academic tutoring and AI-powered learning products reflects growing consumer demand for enrichment and personalized education, positioning the company to benefit from continued societal prioritization of premium educational services-this should support long-term revenue growth and improve blended margins due to scale and higher retention.
  
• Continued investment and rollout of omnichannel online-merge-offline (OMO) and AI-driven systems are enabling operating leverage, cost reductions, and higher efficiency in delivery, which is already resulting in improved operating margins (410bps YoY in core business), supporting future earnings growth through both topline expansion and margin expansion.
  
• Increasing penetration in higher-tier cities and focus on cross-selling new offerings such as study tours, adult learning, and integrated tourism-related businesses align with rising disposable incomes and the trend toward lifelong learning, which should lead to ongoing revenue diversification and help offset the impact of regulatory changes or slower growth in legacy business lines.
  
• Deferred revenue and customer prepayments are up nearly 10% year-over-year, signaling resilient demand and forward visibility in education business lines; this increases predictability of future revenue recognition and cash flow.
  
• Aggressive share repurchases and the introduction of a three-year capital return plan committing at least 50% of net income to buybacks and dividends provide a direct and ongoing catalyst for EPS growth and shareholder value creation, especially when combined with rising profitability.

New Oriental Education & Technology Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming New Oriental Education & Technology Group's revenue will grow by 9.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.6% today to 9.7% in 3 years time.
• Analysts expect earnings to reach $628.5 million (and earnings per share of $4.18) by about August 2028, up from $371.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $790 million in earnings, and the most bearish expecting $420.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.8x on those 2028 earnings, down from 20.3x today. This future PE is lower than the current PE for the US Consumer Services industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 3.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.87%, as per the Simply Wall St company report.

New Oriental Education & Technology Group Future Earnings Per Share Growth

Risks

• Management repeatedly cited macroeconomic headwinds and changes in international relations as negatively impacting demand for overseas study and related consulting services, leading to expected revenue declines (~4-5% YoY) for this segment, which could weigh on the company's overall top-line growth.
  
• Management acknowledged that competition in K-12 and non-academic segments is intensifying compared to last year, raising risk of margin pressure, customer acquisition cost increases, and potential loss of market share, all of which could constrain future revenue and profitability expansion.
  
• The company noted a slowdown in non-academic business and cultural tourism revenue, with the latter requiring significant time and effort to refine its business model; the risk exists that these newer ventures may not deliver the expected returns, potentially diluting operating margins and straining earnings.
  
• A $60 million goodwill impairment in the kindergarten segment (driven by policy and "new wars"/reduced demand) highlights the ongoing risk of unfavorable regulatory changes and demographic pressure in core and adjacent education market segments, which could further increase costs and erode future profits.
  
• Although cost controls boosted margins in the short term, management noted that future margin improvement will likely be incremental (100–150 bps), suggesting risk that slowing revenue growth could eventually outpace cost control efforts, capping longer-term earnings growth and net margin expansion.

Valuation

• The analysts have a consensus price target of $57.615 for New Oriental Education & Technology Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $78.6, and the most bearish reporting a price target of just $37.8.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.5 billion, earnings will come to $628.5 million, and it would be trading on a PE ratio of 16.8x, assuming you use a discount rate of 7.9%.
• Given the current share price of $46.2, the analyst price target of $57.61 is 19.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.