Meeting With 2U CEO Gives Oppenheimer Confidence In Company's Long-Term Growth

Although shares of 2U Inc TWOU may come under pressure due to near-term cash flow and margin concerns, these factors should drive growth and partner expansions in the long term, according to Oppenheimer.

The Analyst

Oppenheimer’s Brian Schwartz maintains an Outperform rating on 2U with an unchanged $83 price target. 

The Thesis

The educational technology company seems to be on track to meet or beat first-quarter consensus estimates, Schwartz said in a Tuesday note issued after he met Monday with CEO Chip Paucek. 

Although 2018 was challenging, 2U is poised to benefit from favorable demand trends for school-as-a-service and digital learning technology, the analyst said. It could gain market share given its differentiated value proposition and “referenceability,” he said. 

2U has long partner contracts of more than 10 years, which makes its revenue model visible and predictable, Schwartz said. The company signed on a large customer last quarter and has potential for continued growth, he said.

Despite the large revenue base, 2U could generate more than 30-percent revenue growth in the foreseeable future, the analyst said. 

The stock is a “good opportunity for long-term investors to own a category leader in a large TAM that's early in an attractive secular opportunity," Schwartz said.

The company’s growth could accelerate over the next 12-24 months, backed by a ramp in new program starts, according to Oppenheimer. 

Price Action

Shares of 2U were down 0.39 percent at $69.54 at the time of publication Tuesday. 

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