Insights

Why WeWork Was a Stock Market Star Today

What happened

Hardly a popular stock since its initial public offering (IPO) last October, WeWork (NYSE: WE) somewhat unexpectedly shot noticeably higher on Thursday. On the back of a very bullish new analyst note, the co-working space specialist’s shares enjoyed a nearly 16% price gain across the day.

So what

After market hours on Wednesday, Credit Suisse prognosticator Tayo Okusanya initiated coverage on WeWork stock with an unhesitating outperform (read: buy) recommendation. Okusanya’s price target is $11 per share, which is nearly double the company’s current level.

The analyst is impressed by several developments from the specialty real estate company. In his note, he wrote that following an intense cost-restructuring program, “we believe WeWork is well positioned to take advantage of the structural demand drivers for the flex office industry, as we view work from home as a long-tailed overhang to demand for traditional office space.”

Okusanya added that WeWork has a considerable first-mover advantage and scale in the co-working segment, and this should be bolstered by the introduction of new products. He’s modeling a return to positive free cash flow generation by next year in addition to lower cost of capital and an improved balance sheet.

Now what

Investors are clearly buying the analyst’s argument. However, a degree of caution is warranted with WeWork. The company is still deeply in the red on the bottom line, although to its credit, it managed to grow its revenue nicely and trim its net loss in the first quarter. We aren’t quite over the coronavirus pandemic, and this continues to keep many would-be lessees in their home and away from co-working environments.

Eric Volkman has positions in WeWork Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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