TAL Education, New Oriental upgraded at JPMorgan as stocks appear cheap

TAL Education and New Oriental Education were raised to neutral at JPMorgan as the Chinese tutoring companies are “more than cheap.”

“We’d like to say this is certainly a good start, but we still struggle to find ways to trade these names on fundamentals, as it’s nearly impossible for anyone to project the scale and profitability of their ‘post-AST (after-school tutoring)’ businesses,” JPMorgan analyst DS Kim wrote in a note.

Kim raised the tutoring stocks to neutral from underweight after both companies resumed reporting quarterly results and earnings calls last week after the Chinese government essentially banned after school tutoring last summer. TAL shares have plunged 94% over the past year and EDU stock has plummeted 92%.

“Having said that, these stocks are cheap – more than cheap, actually – as both are trading at negative enterprise value (i.e., current net cash positions well above their market cap), and we don’t think risk/reward for staying UW is attractive,” Kim added.

Although the analyst said the stocks are cheap, “we’re not comfortable enough to bottom-fish these stocks just yet,” Kim wrote.

TAL’s price target cut to $3.90 from $7.60 and EDU PT cut to $14 from $35.

Recall Friday, TAL Education rallied post Q4 results.

Author:: Joshua Fineman, Seeking Alpha