Cantor upgrades 2U on attractive risk/reward after selloff

Cantor Fitzgerald analyst Brett Knoblauch upgraded 2U to Overweight from Neutral with a price target of $7.40, down from $9.50. The company reported a "solid" Q1 but the biggest driver of the shares is the regulatory overhang stemming from potential policy changes that the Department of Education is considering, the analyst tells investors in a research note. The firm believes the selloff since the proposed changes were introduced on February 15 "has dramatically improved the risk/reward profile of the shares." The market has already priced in a worst-case scenario for 2U, but the likelihood of an actual worst-case scenario were its revenue share gets banned is minimal given the overwhelming support 2U has had from academia, contends Cantor. As such, it sees an opportunity to participate in a business that it expects will see meaningful cash-flow conversion improvements over the coming year.