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Online Education Platform 2U Is One of Baird's Top Ideas For 2019

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Online Education Platform 2U Is One of Baird's Top Ideas For 2019
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Following a down year in 2018, investors could seek out bargains that offer the highest growth potential. Baird sees education technology company 2U Inc (NASDAQ: TWOU) as one such opportunity.

The Analyst

Analyst Jeffrey Meuler maintained an Outperform rating on 2U with an $80 price target, suggesting about 50-percent upside potential.

The Thesis

2U's share price undervalues its portfolio and contract structure as well as its market position and capabilities, Meuler said in a Monday note.

The company exited 2018 with 48 operating programs, with an incremental 16 programs due for launch in 2019, the analyst said. 

The implied target of $5.5 million-$6 million per program per year adjusted EBITDA at a "steady state" is achievable, Meuler said. This suggests the company's 24 programs that are more than two years old are likely to generate over $135 million in adjusted EBITDA in coming years, he said. 

"We also believe 2U is well-positioned to sell additional graduate programs, short courses and potentially new services as a preferred provider for universities, and by leveraging its existing attractive client base." 

2U is likely to see sustained strong 30-percent-plus organic growth with attractive unit economics, the analyst said. Current challenges are client-specific and are not directly caused by 2U, he said. 

Baird sees the following as being sources of competitive advantage and differentiation for the company: 

  • Technology capabilities.
  • The MPV marketing efficiency benefits of its portfolio.
  • Clinical placement capabilities and relationships.
  • Services and support.

The Price Action

2U shares were down 0.34 percent at $53.12 at the time of publication Tuesday.

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Latest Ratings for TWOU

DateFirmActionFromTo
Jan 2019KeyBancMaintainsOverweightOverweight
Nov 2018Credit SuisseMaintainsOutperformOutperform
Nov 2018BMO CapitalMaintainsOutperformOutperform

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Posted-In: Baird Jeffrey MeulerAnalyst Color Price Target Reiteration Analyst Ratings Best of Benzinga

 

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