By Sam Boughedda
Craig-Hallum analysts upgraded shares of Chegg (NYSE:CHGG) to Buy from Hold, raising the firm's price target on the stock to $25 from $20 per share in a note Thursday.
The analysts told investors that higher education enrollment trends appear to be improving, and Chegg will be a key beneficiary.
"There are signs that higher education enrollment is improving," said the analysts.
However, they explained before the pandemic, the total number of college students was declining ~1% per year from a base of ~20 million students and that the loss accelerated as a result of the pandemic, with total enrollment today, down nearly 10% from pre-COVID levels.
"The decline was driven by numerous factors, including a strong job market that reduced demand at community colleges, COVID-era travel rules impacting international students, and the shuttering of a number of mediocre, for-profit, and/or fraudulent schools (e.g. Corinthian Colleges)," the analysts added. "Further, while specific data on this is scant, anecdotal evidence suggests many students took fewer or less rigorous courses during some of the pandemic years, reducing demand for ed tech services even among students still enrolled."
While the analysts believe it is too early to know for sure what enrollment will look like for the upcoming 2023-2024 academic year, they noted "some encouraging early signs," such as data showing unique applicants for the Fall semester rose 6% YoY, estimates from the National Student Clearinghouse estimates that community college enrollment for the Spring semester is up 2% YoY, and Barnes & Noble Education (NYSE:BNED) recently stating that Bartleby returned to positive subscriber growth in January.