Restaurant Takeout is 'Ripe for Disruption' and GrubHub is Leading

GrubHub Inc GRUB has the "dominant platform" in a $70 billion U.S. market that is only 5 percent online, said Sterne Agee in a bullish note on the online delivery platform. Sterne Agee initiated coverage with a Buy and a $56 price target, 23.5 percent upside from the $45.33 closing price Thursday.

Over the next five years, Sterne Agee said that GrubHub's share of U.S. market should grow from 3 percent currently to more than 7 percent.

Sterne Agee even outlined the bear themes, before debunking them with its own forecasts. Those themes revolve around "skepticism on the true size of the addressable market," emerging competition, questions about how GrubHub will scale beyond urban areas, and GrubHub's current valuation.

More than $221 billion was spent at independent restaurants in the U.S. in 2013 - $70 billion of which is spent on takeout, according to the note. Critically, just $3.5 billion was spent online (5 percent), of which GrubHub captured a 50 percent market share, with $1.8 billion in gross food sales.

GrubHub's main growth opportunity, Sterne Agee said, would come from growing the market for online ordering beyond 5 percent of total takeout. Simultaneously, GrubHub should be able to increase its commission per order as well.

The $56 price target is based on 8x estimated 2017 revenue, which is supported by a discounted cash-flow analysis. GrubHub is 25 percent higher year-to-date, and is trading near its record highs.