Leading broker tips 50%+ upside for IDP Education shares

It was a day to forget for owners of IDP Education Ltd (ASX: IEL) shares on Tuesday.

The language testing and student placement company's shares crashed almost 50% to end the day at $3.88. This was their lowest close in over seven years and means its shares are now down almost 90% from their record high.

Investors were hitting the sell button following the release of a market update which revealed that trading conditions were even worse than feared.

While this decline is disappointing, one leading broker sees it as an opportunity to load up on its shares. Let's see what it is saying.

What is being said about IDP Education shares?

A note out of Macquarie Group Ltd (ASX: MQG) today reveals that its analysts were disappointed with the company's update. They said:

DP has seen a deterioration in volumes during May/June, impacted by negative student immigration rhetoric, and now expects to report A $115-125m FY25 adjusted EBIT, which at the mid-point (A$120m) was 30%/28% below MQe (A$172m)/Visible Alpha (A$166m).

Student placement volumes were worse than expected, and likely to be down 28-30% in FY25, with the recent re-election of current governments in Canada (report link) and Australia (report link) yet to improve sentiment, the UK being impacted by proposed changes to post-work right visas (media release), and visa restrictions in the US (news article). Notably, pricing continues to be strong, around low teens growth.

Staying positive

However, the broker has retained its outperform rating on IDP Education's shares.

Though, it has taken an almighty axe to its valuation for the company. Macquarie has put a $6.40 price target on its shares, which is down a whopping 60% from $16.00 previously.

Nevertheless, this still means there's potential for some big returns over the next 12 months.

Based on its current share price of $4.15, Macquarie's price target implies upside of 54% for investors between now and this time next year.

In addition, the broker expects IDP Education to continue to pay dividends despite the difficult trading conditions. It has pencilled in 10 cents per share dividends for both FY 2025 and FY 2026.

This represents dividend yields of 2.4%, which boosts the total potential return beyond 56%.

Why is still bullish?

Macquarie remains bullish on IDP Education shares because it believes that double digit growth is still possible in the coming years.

In light of this, it thinks investors should be patient and wait for re-rating catalysts to emerge. It concludes:

Our thesis is unchanged – long-term IDP can deliver double-digit growth, albeit, current trading is impacted by negative rhetoric/anti-student immigration policy settings in key markets, which should annualise in FY26. Cost-out and improving volumes/sentiment are key re-rating catalysts.

The post Leading broker tips 50%+ upside for IDP Education shares appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Idp Education and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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