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The recent selloff in Vitru shares presents an attractive entry point opportunity, according to Morgan Stanley. Morgan Stanley upgraded Vitru shares to overweight. Meanwhile, the bank’s price target of $22 implies shares rallying 69.5% from Friday’s close. The stock jumped almost 8% during Monday’s trading session. Shares of the Brazil-based digital education company have plunged 44% since March, as of Friday’s closing price. However, Morgan Stanley thinks the decline wasn’t due to the company’s fundamentals, but rather was “exacerbated” by the stock’s limited liquidity. VTRU YTD mountain Vitru stock “We believe this represents an attractive entry point opportunity and Vitru should continue to deliver good operating and financial performance,” analyst Javier Martinez de Olcoz Cerdan wrote in a research note. “Following last month’s large de-rating, reducing the multiple gap with peers, VTRU is a company that does not need FIES to continue delivering the best earnings momentum in the sector, given its [distance learning] focus and solid execution,” said Martinez. Brazil’s new government under President Luiz Inácio Lula da Silva has been vocal about expanding the country’s higher education financing fund known as Fundo de Financiamento ao Estudante do Ensino Superior, according to the analyst. “FIES expansion could be a game changer, potentially doubling an out-of-fashion sector… or not,” said Martinez, adding that its impact would depend on the size of the program, distribution rules and how funds would flow to companies. The analyst thinks other factors that will help Vitru continue to deliver strong results are “margin improvement with commercial and OPEX synergies, and generation of FCF after interest expenses to pay debt obligations despite having high leverage (~4x proforma).” “Vitru is the best-positioned player to capture the [distance learning] opportunity,” added Martinez. —CNBC’s Michael Bloom contributed to this report.
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