Pacific Crest Securities Initiates Coverage On 2U Inc.

Pacific Crest Securities initiated coverage on 2U Inc. TWOU in a report issued Thursday with an Outperform rating and $20 price target.

Analyst Ben McFadden praised the company’s “best-in-class monetization and strong graduation rates” which have made “2U the premium name in online education.”

The report projected that “the ramping of new programs is likely to drive upside to growth estimates.”

McFadden noted the company “possesses core competitive advantages around student acquisition and placement services, and a unique classroom model that is driving outcomes on par with, if not better than, traditional on-premise education.”

According to the report, the higher education market is valued at $550 billion and universities are looking for new revenue streams, giving the company “a $300 million-plus revenue opportunity with existing announced programs alone, and the opportunity should continue to expand quickly as at least four programs are launched yearly.

McFadden concluded that “lifetime value of a program is significant and steady-state EBITDA margins are likely to be 30 percent-plus. We believe the stock deserves a valuation more befitting its disruptive potential and recurring revenue.”

2U Inc. recently traded at $15.82, down 1.49 percent.