JMP Reiterates On GrubHub, Is One Of The 'Highest Margin Businesses'

JMP Securities reiterated its Market Outperform rating and $52 price target on GrubHub Inc GRUB Tuesday.

Analysts led by Ronald V. Josey concluded that the company “grew restaurants by 4 percent to 68,100 restaurants across 385 cities listed on GrubHub.com over the past four months.”

Josey noted that “as we enter the seasonally strongest part of the year for GrubHub, 4Q and 1Q, we believe the company is creating a defensible two-sided marketplace for both Active Diners and restaurants across its 800+ cities in the U.S. and London.”

Josey acknowledged “that there may be some concern around GrubHub’s testing of delivery services, but our analysis suggests that delivery could significantly expand GrubHub’s Active Diners, increase order frequency, and expand its restaurant selection at a minimal cost as we believe delivery expenses would be spread across the consumers and the restaurant.”

“Overall, we view the $70B+ food take-out industry as one of the largest, most fragmented, and offline verticals, and we believe GrubHub is leading the transition online given its 30,000+ restaurants across 800+ cities and 4.6M Active Diners. With 75 percent contribution margins on incremental revenue, GrubHub operates one of the highest margin businesses across our coverage universe,” according to the analyst note.

The $52 price target was based on a “DCF analysis with a WACC of 10 percent, a 10x terminal multiple, and three-year 2013-2016 CAGRs of 33.5 percent for revenue and 49.6 percent for EBITDA.”

GrubHub Inc recently traded at $36.25, down 1.97 percent.