For Grubhub, The UK Could Be A More Attractive Market Than The US

David Reynolds, an analyst at Jefferies, initiated coverage of GrubHub Inc GRUB Tuesday with a Hold rating and $43 price target. Part of the reason for the Hold rating is the company's "complex" business with "little transparency."

According to Reynolds, GrubHub's financial disclosures is "in many ways reasonable," but compared to its UK-based peer Just Eat, it's "poor." For example, Just Eat splits its income statement into four separate business segments which helps investors understand the equity thesis. GrubHub doesn't offer the same to investors which hampers the understanding of the business.

Nevertheless, Reynolds broke down GrubHub into three different business segments: Corporate, NY Consumer and US Consumer.

The corporate segment is expected to see a compounded annual growth rate of 10 percent through 2018, the NY Consumer segment is expected to see a CAGR of 40 percent and the US Consumer group is expected to see a CAGR of just 10 percent.

Given the growth rates through 2018, specifically "only" 10 percent for the US Consumer segment, the analyst suggested that the US market opportunity for GrubHub "seems less attractive" compared to the company's growth prospects in the United Kingdom.

However, even in the more lucrative UK market, GrubHub still falls short of its competition. The analyst suggested that UK-listed Just Eat is a more "relevant" peer with a superior financial disclosure, a "more attractive" geographical footprint, better growth rates and superior profits.