IDP Education Ltd (ASX: IEL) shares have faced significant challenges in recent months, with a steep decline of 34% since reaching a 52-week high of $32.17 in February. This puts the ASX 200 growth share close to its 52-week low. However, Goldman Sachs believes that this dip presents a buying opportunity for investors.
Goldman Sachs has reiterated its buy rating for IDP Education shares and provided a trimmed price target of $28.90, indicating potential upside of 36% over the next year. The brokerage firm acknowledges that the company’s share price has been affected by the loss of its language testing monopoly in Canada. Despite adjusting its earnings estimates to reflect a potential 30% loss of market share in Canada, Goldman Sachs believes that the shares have been oversold, particularly considering the expected growth in IDP Education’s student placement business.
The broker states that it remains confident in its new IELTS volume estimates, which assume a marginal decline of 1.3% followed by a 4.2% increase in FY24/25. These estimates are based on a market growth projection of around 7% per year and an anticipated 30% decline in Canada testing volumes, compared to the current market share of 80-90%. Goldman Sachs emphasizes that even with a 10% share loss in Canada, the impact on group EBIT for FY24E would be approximately 3%. Furthermore, it highlights that over 80% of incremental earnings in the coming years will be driven by the company’s Student Placement segment. Therefore, while the market may remain focused on the impact of the loss in Canada, Goldman Sachs anticipates a shift in attention towards the growth potential of the Student Placement division.
Overall, Goldman Sachs perceives a favorable risk/reward ratio for IDP Education shares, making them a top buy at present. The broker recommends that investors shift their focus from near-term concerns regarding IELTS to the long-term prospects of the Student Placement segment. By adhering to these guidelines, Goldman Sachs expects IDP Education to regain its momentum and deliver strong financial performance.
It is worth noting that this article is based on Goldman Sachs’ perspective and recommendation. Investors should conduct their own research and consider other viewpoints before making any investment decisions.
