HSBC Upgrades New Oriental to 'Buy' After Strong Quarterly Performance, Citing Resilient Growth Strategy
In a significant vote of confidence for China's private education sector, HSBC upgraded its rating on New Oriental Education & Technology Group (NYSE: EDU) from 'Hold' to 'Buy' on January 29. The move came directly on the heels of the company's impressive second-quarter fiscal 2026 earnings report, which showcased substantial growth across both traditional and new business lines.
Analyst Charlotte Wei at HSBC maintained a price target of $68 for the stock, underscoring a positive outlook based on the latest financials. New Oriental reported net revenues of approximately $1.19 billion for the quarter ended November 30, 2025, a 14.7% increase year-over-year and surpassing analyst estimates by $28.62 million. Adjusted earnings per share came in at $0.45, beating expectations by $0.11. Perhaps most notably, net profit surged 42.3% to $45.5 million, signaling effective cost management and operational leverage.
"Our performance this quarter reflects the successful execution of our diversified growth strategy," stated Chenggang Zhou, Chief Executive Officer of New Oriental. The breakdown reveals a multi-engine recovery: overseas test preparation services grew 4.1%, domestic test preparation rose nearly 12.8%, and newer educational initiatives—a strategic focus area—jumped 21.6% from the prior year. Furthermore, the company's non-academic tutoring courses, now offered in 50 cities, attracted about 1.06 million students. Its foray into educational technology also gained traction, with intelligent learning systems and devices recording 352,000 active paid users.
The upgrade places a spotlight on New Oriental's resilient adaptation to China's evolving educational landscape. Following regulatory reforms in 2021 that reshaped the afterschool tutoring industry, the company has pivoted towards non-academic tutoring, overseas services, and digital learning tools—a transition that now appears to be bearing financial fruit.
Market Impact & Analysis: HSBC's upgrade is likely to reinforce investor sentiment towards Chinese education stocks listed abroad, a segment that has faced volatility. New Oriental's results suggest that leading players can navigate regulatory changes and find new growth pathways. The sustained demand for test preparation, both domestically and for students aiming to study overseas, remains a core, stable revenue driver.
Reader Reactions:
Michael Tan, Portfolio Manager in Shanghai: "This isn't just a quarterly beat; it's a validation of their pivot. The growth in new initiatives exceeding 20% shows they're not just surviving post-regulations, but building a legitimate, diversified education services company. The 'Buy' rating is warranted."
Lisa Wang, Parent & Education Blogger: "As a parent, I see their new non-academic courses everywhere. They've successfully rebranded from 'cram school' to 'quality enrichment provider.' Their financial recovery makes sense given their market presence, but I hope the focus remains on educational value, not just shareholder value."
David Chen, Independent Market Analyst: "Let's not get carried away. A single quarter of strong profit growth off a low base is being celebrated, but structural challenges remain. Regulatory risk is a permanent overhang, and competition in non-academic spaces is fierce. HSBC might be a bit premature—this feels like catching a falling knife with prettier numbers."
Professor Eleanor James, Education Policy Expert: "New Oriental's case is a critical one to watch. It demonstrates how large-scale private education capital is redirecting itself within the bounds of new policy. Their tech and overseas expansion are smart moves, but their long-term sustainability will depend on continuous innovation and strict compliance."
As one of the largest Chinese companies listed on U.S. exchanges, New Oriental's performance and analyst actions are closely watched as a barometer for the sector. The company's ability to maintain this momentum will be crucial for investor confidence moving forward.