The analysts covering New Oriental Education & Technology Group Inc. (NYSE:EDU) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next year. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.

Following the downgrade, the latest consensus from New Oriental Education & Technology Group's 23 analysts is for revenues of US$4.7b in 2022, which would reflect a major 22% improvement in sales compared to the last 12 months. Statutory earnings per share are presumed to surge 59% to US$0.39. Prior to this update, the analysts had been forecasting revenues of US$5.3b and earnings per share (EPS) of US$0.40 in 2022. It looks like analyst sentiment has fallen somewhat in this update, with a measurable cut to revenue estimates and a small dip in earnings per share numbers as well.

View our latest analysis for New Oriental Education & Technology Group

It'll come as no surprise then, to learn that the analysts have cut their price target 49% to US$8.21. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on New Oriental Education & Technology Group, with the most bullish analyst valuing it at US$23.55 and the most bearish at US$2.10 per share. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. With this in mind, we wouldn't rely too heavily on the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We can infer from the latest estimates that forecasts expect a continuation of New Oriental Education & Technology Group'shistorical trends, as the 17% annualised revenue growth to the end of 2022 is roughly in line with the 21% annual revenue growth over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenues grow 12% per year. So although New Oriental Education & Technology Group is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider industry.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for New Oriental Education & Technology Group. Unfortunately, analysts also downgraded their revenue estimates, although our data indicates revenues are expected to perform better than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of New Oriental Education & Technology Group's future valuation. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on New Oriental Education & Technology Group after today.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for New Oriental Education & Technology Group going out to 2024, 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.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.