Orders Per Diner Up At GrubHub, Morgan Stanley Lifts Price Target To $36

Morgan Stanley’s Brian Nowak expressed increasing confidence in the sustainability of GrubHub Inc GRUB's improved orders per diner.

Nowak maintains an Equal-Weight rating on the company, while raising the price target from $31 to $36.

Top-Line Beat

The company beat top-line expectations in Q2:16, driven largely by increasing orders per diner.

The analyst believes GrubHub’s improved orders per diner during the quarter was “spurred by GRUB's new recommendation platform which has done a better job of matching diners with potential restaurants and meals. This is leading to higher conversion and more orders per diner.”

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Sustainable Improvement

The company’s huge amount of data and persisting efforts and testing to drive further improvement in the matching process into Q3:16 has raised the analyst’s confidence in the sustainability of the improved orders per diner.

Nowak also believes GrubHub’s high incremental gross margins, which translate into robust gross profit dollar growth, increase the company ability to invest in delivery, marketing and growing its business, while continuing to generate robust EBITDA growth.

Estimates Raised

“We are raising our long-term estimates largely to reflect 1) more sustainability of increasing orders per diner rates which played a large role in the recent 2Q:16 beat, and 2) increased take rates in our out years as we had previously assumed rising take rate pressure as GRUB works to sign up more chain restaurants,” the analyst added.

Full ratings data available on Benzinga Pro.