Wall Street Analysts See a 38.07% Upside in TAL Education (TAL): Can the Stock Really Move This High?

Have you been paying attention to shares of K12 (LRN)? Shares have been on the move with the stock up 10.2% over the past month. The stock hit a new 52-week high of $92.75 in the previous session. K12 has gained 55.5% since the start of the year compared to the 4.6% move for the Zacks Consumer Discretionary sector and the 1.1% return for the Zacks Schools industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 22, 2024, K12 reported EPS of $0.94 versus consensus estimate of $0.2.

For the current fiscal year, K12 is expected to post earnings of $6.15 per share on $2.3 billion in revenues. This represents a 31.13% change in EPS on a 12.61% change in revenues. For the next fiscal year, the company is expected to earn $6.90 per share on $2.43 billion in revenues. This represents a year-over-year change of 12.3% and 5.93%, respectively.

Valuation Metrics

K12 may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.

K12 has a Value Score of A. The stock's Growth and Momentum Scores are A and A, respectively, giving the company a VGM Score of A.

In terms of its value breakdown, the stock currently trades at 15X current fiscal year EPS estimates, which is not in-line with the peer industry average of 17.2X. On a trailing cash flow basis, the stock currently trades at 12.7X versus its peer group's average of 10.3X. Additionally, the stock has a PEG ratio of 0.75. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, K12 currently has a Zacks Rank of #1 (Strong Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if K12 passes the test. Thus, it seems as though K12 shares could still be poised for more gains ahead.

How Does LRN Stack Up to the Competition?

Shares of LRN have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is TAL Education Group (TAL). TAL has a Zacks Rank of # 1 (Strong Buy) and a Value Score of D, a Growth Score of B, and a Momentum Score of C.

Earnings were strong last quarter. TAL Education Group beat our consensus estimate by 33.33%, and for the current fiscal year, TAL is expected to post earnings of $0.26 per share on revenue of $2.15 billion.

Shares of TAL Education Group have gained 2.1% over the past month, and currently trade at a forward P/E of 40.38X and a P/CF of 241.48X.

The Schools industry is in the top 9% of all the industries we have in our universe, so it looks like there are some nice tailwinds for LRN and TAL, even beyond their own solid fundamental situation.

Zacks Investment Research

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