TAL Education Group (NYSE:TAL) Analysts Just Slashed This Year's Estimates

The analysts covering TAL Education Group (NYSE:TAL) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. Surprisingly the share price has been buoyant, rising 40% to US$3.75 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

Following the downgrade, the consensus from eleven analysts covering TAL Education Group is for revenues of US$997m in 2023, implying a disturbing 77% decline in sales compared to the last 12 months. The loss per share is anticipated to greatly reduce in the near future, narrowing 76% to US$0.42. Yet before this consensus update, the analysts had been forecasting revenues of US$1.7b and losses of US$0.35 per share in 2023. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

View our latest analysis for TAL Education Group

The consensus price target fell 11% to US$4.51, with the analysts clearly concerned about the company following the weaker revenue and earnings outlook. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values TAL Education Group at US$10.00 per share, while the most bearish prices it at US$2.50. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 77% by the end of 2023. This indicates a significant reduction from annual growth of 28% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 6.4% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - TAL Education Group is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that analysts increased their loss per share estimates for this year. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that TAL Education Group's revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple TAL Education Group analysts - going out to 2025, and you can see them free on our platform here.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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