On Monday, Baird revised its price target for 2U, Inc. (NASDAQ:TWOU), an education technology company, to $1.00 from the previous $1.50. The firm maintained a Neutral rating on the stock. The adjustment follows the company's first-quarter results for 2024, which surpassed consensus expectations, and the affirmation of its guidance for the full year.
The analyst noted that 2U's first-quarter performance was solid compared to expectations, with the company reporting earnings above the consensus and maintaining its 2024 guidance. The report highlighted the promising developments in Degreed, one of 2U's products, which showed a positive trend by normalizing for significant client attrition that was already known due to portfolio management efforts. This normalization resulted in a decrease in enrollment declines and robust new enrollment growth among ongoing clients.
2U is also undertaking new launches using a more capital-efficient model, which appears to be yielding positive outcomes. The company's Executive Education segment performed well, although its Coding Bootcamps faced challenges. In response, 2U is exploring opportunities to supplement this area with AI Bootcamps, aiming to attract new interest and growth.
The analyst also pointed out that 2U is making progress with expense and productivity initiatives, signaling efforts to improve operational efficiency. Despite these positive developments, the report expressed caution, indicating that there is expected to be very limited public market interest in 2U's common equity. This sentiment is attributed to the high balance sheet risk that the company currently faces.
To address this concern, 2U is actively working on strategies to mitigate balance sheet risks. The company's efforts in this area will be closely watched by investors as they could potentially influence future market interest and the stock's performance.
InvestingPro Insights
As 2U, Inc. (NASDAQ:TWOU) navigates through its operational strategies and market challenges, real-time data from InvestingPro provides a nuanced perspective on the company's financial health and stock performance. With a market capitalization of only $28.61 million, the company's valuation reflects the concerns highlighted by Baird. Despite an impressive gross profit margin of 72.93% over the last twelve months as of Q1 2024, 2U's revenue has declined by 4.47% in the same period, with a more pronounced quarterly revenue drop of 16.82%. This contraction aligns with Baird's caution regarding the company's market interest and balance sheet risk.
Trading at a low Price/Book multiple of 0.17, the stock may appear undervalued, which could attract investors seeking bargain opportunities. However, InvestingPro Tips suggest that analysts have revised their earnings downwards for the upcoming period and do not anticipate the company will be profitable this year. The stock's price volatility and significant return over the last week, with a 28.3% price total return, may be of interest to traders looking for short-term movements. Nonetheless, a long-term view shows a price that has fallen significantly over the last year, with a year-to-date price total return of -72.36%, reinforcing the need for cautious investment consideration.
To gain deeper insights and additional InvestingPro Tips, which currently number over 10 for 2U, Inc., investors can explore the full range of analytics available at InvestingPro. For those looking to subscribe, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of data and expert analysis to inform investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.