Credit Suisse Has Had Its Fill Of Grubhub Shares, Downgrades To Neutral

After a nearly 50-percent return since the start of 2017, now may be a right time for investors to start pocketing some of their profits in GrubHub Inc GRUB, at least according to analysts at Credit Suisse. The firm's Paul Bieber downgrades GrubHub's stock rating from Outperform to Neutral but with a price target raised from $50 to $53.

Grubhub's stock is now fairly valued and trading at a "healthy" 39x P/E multiple, Bieber commented in his downgrade note. The stock's multiple is also assuming the company will report future results near the high end of management's own estimates and doesn't assume a discount for management conservatism or execution risk.

Specifically, when Grubhub offers its 2018 EBITDA outlook in January it will likely be conservative and at the low end of the analyst's accretion range for four reasons:

1. The ongoing migration of the Eat24 platform implies a delay of accretion until late 2018 if not 2019.
2. The pace of delivery mix shift creates some uncertainty regarding EBITDA.
3. The company could choose to invest some of the accretions in marketing to drive higher growth.
4. Management does have a history of being conservative when offering annual guidance.

"While we are positive on Grubhub's leadership position in a market that remains early in the online share shift, we are lowering our rating to Neutral as we believe shares embed an optimistic scenario on the magnitude of accretion from recent acquisitions," the analyst wrote (see Bieber's track record here).

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