Goldman Neutral On New Oriental Education & Technology Group (EDU)

Goldman Sachs has a Neutral rating and is raising its price target to $103 from $99 on shares of New Oriental Education & Technology Group EDU. In a note to clients, Goldman writes, "We view robust revenue growth delivered in 2Q and guided for in 3QFY11 as indicative of payoffs realized from increased investments to ramp newer businesses. We are also encouraged by EDU's cognizance of cost control and more detailed outline of measures. However, we believe that implementation is complicated for a company of its scale. Moreover, market expectations have already factored in a natural recovery in FY12 margins off depressed FY11 levels, and we do not have confidence or visibility at this stage to forecast more dramatic recovery. We consider also that the faster growing segments are also structurally lower margin, although this was likely exacerbated by overexpansion. Should the company be able to effectively manage costs, we believe that greater operating leverage is achievable, driven by continued pricing increases, rising utilization and maturation of new businesses. We would turn more positive as we see evidence of execution." Shares of EDU lost 30 cents yesterday to close at $107.41.