It has been a volatile week for IDP Education Ltd (ASX: IEL) shares.
Investors were scrambling to buy the ASX 200 stock on Wednesday after it impressed the market with its half-year results.
The student placement and language testing company's shares were up over 15% following the release.
However, a day later, IDP Education's shares gave back all these gains and some more and are now trading lower than they were pre-results release.
While this is disappointing, the team at Goldman Sachs is likely to see it as a buying opportunity for investors.
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Why this ASX 200 stock could be a buy
Goldman was impressed with the result and remains positive on the company's outlook despite regulatory tightening measures across its primary destination markets. It explains:
IEL reported a strong 1H24 result, however investor focus has rightly shifted to the outlook for 2H24/FY25 given regulatory tightening measures across IEL's primary destination markets.
In our view, in an environment of softer market volumes, quality agents that can provide genuine students from a diversity of source markets should be well-placed to gain share, and IEL's 1H24 result was an initial validation of this thesis (industry volumes -3% vs IEL +33% yoy).
In respect to its language testing business, the broker has trimmed its earnings estimates to reflect regulatory changes. However, it believes the business will return to growth once the market normalises. Goldman said:
[W]e adopt a more cautious stance and reduce our FY24/25/26E volume estimates -4%/-11%/-8% – now forecasting high single digit volume declines in both FY24/25E. Into the medium term, we remain of the view that IELTS can resume growth once Indian market dynamics normalise, particularly given ex-India volumes are growing at a high-teens pace with expansion opportunities into underserved markets such as Africa.
Big returns ahead
Goldman has reiterated its buy rating on the ASX 200 stock with a new price target of $26.60 (from $27.60).
Based on its current share price of $19.99, this implies potential upside of 33% for investors over the next 12 months.
And with Goldman forecasting a 46 cents per share partially franked dividend in FY 2024, this represents a 2.3% dividend yield, boosting the total potential return beyond 35%.
Goldman concludes:
IEL is likely to emerge through this period of short-term regulatory tightening with a more diversified business and stronger SP market position to capitalise on the long-term structural growth in international education, setting up the company for multi-year mid-teens earnings growth. On that basis, the shares represent attractive value, and we reiterate Buy
