KeyBanc Expects Chegg (CHGG) to Deliver a 'Strong Beat' and Higher Guide Amid Accelerating Trends, Raises PT to a 'Street-High' $120

January 26, 2021 5:46 AM EST
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(Updated - January 26, 2021 8:39 AM EST)

KeyBanc analyst Jason Celino raised the price target on Chegg (NYSE: CHGG) to a 'Street High' $120.00 (from $100.00) while maintaining an Overweight rating. The analyst expects the company to deliver better than expected 4Q results and unveil higher guidance. The company is due to report its earnings on February 8th.

The acceleration in growth trends is likely to pave the way for the company to beat consensus by $10 million to $15 million, writes Celino in today’s note sent to clients.

“Our Key First Look Data of credit/debit card transactions showed strong growth acceleration to 80% y/y for 4Q. For the month of December, growth topped out at 88% y/y, up from 79% y/y in November and 72% y/y in October (see our Intra-Quarter Key First Look Data Update). When taken in context with 4Q guidance/consensus estimates modeling ~17 pts of sequential y/y growth deceleration to ~48% in 4Q, this increases our confidence for upside. If 4Q growth were to come in at similar level (60-65% organic), this could drive $10M-$15M upside in both Chegg Services revenue and total revenue,” the analyst said.

Additionally, Celino is projecting that CHGG will raise its 2021 revenue growth guidance from 24% to 25%.

“Given it remains early in the year, and we could see some variability in deceleration quarter-by-quarter, we expect Chegg to prudently raise its implied 2021 revenue growth guidance to 25% y/y (from ~24% currently). While this may be viewed somewhat conservatively, supported by continued strength in Study Pack and early opportunities in international, we could see Chegg drive revenue growth toward the mid- to upper 20% by the end of 2021 (and Chegg Services growth to the low- to mid-30% level.”

“We are modestly raising our 2021 and 2022 estimates to reflect the continued strength in Study Pack. With momentum around Study Pack, international, and supported by recently implemented piracy enforcement measures, we are raising our price target to a Street-high $120 based on 18x 2022 EV/sales. Looking solely at the Chegg Services business, which we view as a 30%+ growth business, our target implies 21x 2022 EV/ recurring sales based on 2022 Chegg Services revenue estimates, and is consistent with the 30%+ SaaS growers averaging +20x out-year multiples,” Celino concludes.

The bull case price target for CHGG is $140.00 per share.

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