11:19 AM EDT, 08/13/2025 (MT Newswires) -- KinderCare Learning Companies' ( KLC ) Q2 revenue drop and a reduction in guidance were due to lower-than-expected enrollment, Morgan Stanley said in a Wednesday note.

Management attributed the softness to micro-market factors that affected center director efficiency, teacher turnover, and adjustments related to recently launched digital enrollment methods, according to the note.

Pricing could sequentially rise towards 2.75% after averaging 2.4% in H1, while closed centers remain on track with initial guidance. Overall, the daycare center provider and the overall child care industry are witnessing enrollment challenges due to delayed start dates for new families, analysts wrote.

While investors were concerned about government funding cuts for childcare, the brokerage said it has yet to see supporting evidence and expects subsidies to continue in 2026.

Morgan Stanley lowered its adjusted earnings before interest, taxes, depreciation, and amortization guidance for 2025 and 2026 by 2% and 3%, respectively.

The brokerage said it reiterated its overweight rating on the stock and adjusted its price target to $14 per share from $15.

Price: 8.01, Change: -1.80, Percent Change: -18.35