KinderCare Learning (KLC) faces continued enrollment challenges and operating deleverage risk after issuing weak 2026 guidance, Morgan Stanley said in a Friday note.

The company reported fiscal Q4 adjusted earnings late Thursday of $0.12 per diluted share, up from $0.09 a year earlier, as revenue rose to $688.1 million from $647 million. For outlook, KinderCare said it expects fiscal 2026 adjusted EPS of $0.10 to $0.20 on revenue of $2.70 billion to $2.75 billion.

Morgan Stanley said weak enrollments weighed down fiscal Q4, leading to a 340-basis-point decline in occupancy. Apart from enrollments, headwinds include potential lower center growth, decelerating pricing, and childcare affordability issues, the investment firm said.

The firm's 2026 outlook also reflects an expected enrollment decline that could pressure operating leverage, with revenue and EBITDA guidance coming in below Morgan Stanley estimates. The firm said KinderCare's 2026 adjusted EBITDA guidance is about 27% below its estimate.

Morgan Stanley downgraded KinderCare Learning to underweight from equal-weight and cut its price target to $2.50 from $6.

Shares of KinderCare Learning were down nearly 38% in Friday trading.

Price: 2.12, Change: -1.28, Percent Change: -37.65