In time for back-to-school, Piper Sandler analysts bullish on Chegg

Written by: Jayson Derrick
August 31, 2020
  • Piper Sandler analysts are bullish on online education company Chegg.
  • The call follows a 250% surge in the stock since March, followed by a selloff
  • Chart pro Matt Maley has a better play in the education sector.

Just in time for the back-to-school season, Piper Sandler analysts initiated coverage of textbook rental company Chegg Inc (NYSE: CHGG) on Thursday with an Overweight rating and a $90 price target.

The research report

Piper Sandler analysts named the educational-focused company as one of the top beneficiaries of the unique shift towards online learning. The company is a leader in “digitizing the student experience” by offering students much needed savings on renting and buying materials, especially textbooks.

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“As education increasingly adapts to online learning models, we expect Chegg to be a primary beneficiary, given the company’s core offering is digitizing the student experience,” the analysts were quoted by Seeking Alpha as saying in the note.

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What the chart says

Chegg’s stock has moved higher by more than 250% since its March lows and the research firm deserves credit for waiting for a dip in the stock before introducing their bullish stance, Miller Tabak Chief Market Strategist Matt Maley said during a CNBC “Trading Nation” interview. Specifically, Chegg’s stock peaked just pennies below the $90 per share mark in early August and gave back around $20 per share.

As such, the stock is no longer overbought on a technical basis and the dip is “very positive” for new investors. CEO Dan Rosensweig previously explained how its “student first” mentality will lead to success.

The chart is also showing what could be seen as a head-and-shoulders pattern with a “neckline” of around $70, he said. If the stock falls below $70, it could be seen as a sign for investors to start exiting their position.

The analyst explains:

“Whenever you break a neckline of a head-and-shoulders pattern, that’s one of the most bearish developments you can see,” he said. “I will say, though, a failed head-and-shoulders — in other words, when you bounce off the neckline — is one of the most positive moves you ever see in technical analysis. So, we’re kind of at a key level right now.”

Maley’s education stock pick

Instead of Chegg, Maley said he likes shares of Pluralslight Inc (NASDAQ: PS), a provider of virtual training courses for multiple technical and creative skills.

Shares recently traded above a trend line that dates back to 2019 and this is a positive sign for the stock. Shares are showing signs of momentum as it nears its early-June highs. If the stock breaks above $22 per share it could benefit from “another leg of momentum higher.”

Bottom line, the chart pro says he likes both stocks but Pluralsight “looks best to me.” However, the trade thesis may have an expiration date as a future coronavirus vaccine would ultimately allow people to be fully comfortable with a return to school. At that point, he said, “some of the air is going to get let out of this group.”