Strategic Initiatives to Aid New Oriental (EDU) Q3 Earnings

New Oriental Education & Technology Group Inc. EDU is slated to report third-quarter fiscal 2019 results on Apr 23, before the opening bell. In the last reported quarter, the company’s adjusted earnings of 14 cents increased 68.6% from the year-ago level of 9 cents.

New Oriental’s fiscal second-quarter revenues also improved 27.8% from a year ago to $597.1 million. The upside was mainly attributable to its key business unit, K-12 all-subjects after-school tutoring, which recorded revenue growth of 38% year over year, given solid U-Can middle and high school all-subjects after-school tutoring business, and POP Kids program.

Notably, shares of China's largest after-school tutoring service provider have gained 47% compared with its industry’s 23.9% growth in the past six months. Earnings estimates for the to-be-reported quarter have remained stable over the past 60 days.

Earnings & Revenue Expectation

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for New Oriental’s fiscal third-quarter earnings is pegged at 71 cents per share, implying growth of 24.6% from the year-ago reported figure.

New Oriental Education & Technology Group, Inc. Price and EPS Surprise

New Oriental Education & Technology Group, Inc. Price and EPS Surprise | New Oriental Education & Technology Group, Inc. Quote

Let’s See How Things are Shaping Up for This Announcement

New Oriental’s fiscal third-quarter results are expected to benefit from ongoing expansion strategies and various training programs for potential candidates.

New Oriental has been focusing on increasing the pace of its learning center network expansion, which is likely to positively impact the to-be-reported quarter. The company has opened 185 new schools and learning centers during first-half fiscal 2019, which are likely to benefit the upcoming results. Also, K-12 after-school tutoring is expected to contribute significantly to the company’s overall enrollment growth in the fiscal third quarter.

It has launched various training programs to satisfy the needs of prospective candidates. This is likely to contribute to top-line growth in the quarter to be reported. Particularly, New Oriental U-Can All Subjects and Pop Kids All Subjects training programs are helping the company to post higher revenues over the past few years. This positive trend is likely to be favorable for the upcoming results as well.

The company expects total net revenues for third-quarter fiscal 2019 in the range of $769.9-$793.2 million, indicating year-over-year growth of 25-28%.

However, higher teachers' compensation caused by increased teaching hours, rental cost of additional schools and learning centers, along with higher promotion and R&D expenses are expected to pressurize its margins in the fiscal third quarter.

What the Zacks Model Says

Our proven model shows that New Oriental is unlikely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: New Oriental currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks With Favorable Combination

Here are some Consumer Discretionary stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases:

JAKKS Pacific, Inc. JAKK has an Earnings ESP of +17.86% and holds a Zacks Rank #2.

Strategic Education, Inc. STRA has an Earnings ESP of +3.74% and a Zacks Rank #3.

Boyd Gaming Corporation BYD has an Earnings ESP of +6.56% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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