Seeking Alpha
Editor's notes: The expiry of favorable leases, and a concern for short-term reporting advantages suggest things aren't as good as they seem at TAL International. Shares could fall by two-thirds.

Trouble Ahead for TAL (TAL International)

We believe 2014 will be a difficult one for TAL and expect significant EPS misses. Further, the company could breach covenants on credit agreements and/or eliminate its dividend. We expect the stock to decline significantly and believe it's worth less than $20 (vs. $56.75)

Specifically, we expect:

  1. Expiring leases to re-strike lower (Revenue Shortfall)
  2. Rising depreciation and declining gains on sale (EBIT Margins Falling)
  3. Interest expense to rise (Further EPS Misses)

These factors are likely to cause TAL to miss EPS estimates by meaningful amounts, reduce (or eliminate) the dividend, and put the company at risk of breaching covenants, especially if their large deferred tax liability starts to unwind.

Given these concerns, we...

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