TAL Education Earnings: Solid Results Overshadowed by Disappointing Margin Outlook

TAL Education's shares fell 9% as its solid fiscal 2025 first-quarter (ending May) result was overshadowed by a less-favorable margin outlook. Revenue grew 50% year on year in the quarter, and non-GAAP operating margin turned positive, a significant improvement from negative 11.7% a year ago. We anticipate the growth momentum to continue in the near term, but we think its margin will be affected as the company invests for the future. As such, we increase our revenue projections by 5%-13% but reduce our operating margin forecasts by 69 basis points-175 basis points for fiscal 2025-29. This leads to 61% and 15% decrease in our earnings estimate for fiscal 2025 and 2026, respectively, while our earnings estimates for 2027-29 are unchanged. We still expect TAL to turn profitable in fiscal 2025, albeit with a slim 0.9% net profit margin, down from the previously forecast 2.3%. We keep our fair value estimate at USD 9.7 per share. Given limited upside to our fair value estimate, we recommend that investors wait for more attractive entry points.