KeyBanc: Blue Apron Could Be A 'Compelling Acquisition Target'

Blue Apron Holdings Inc APRN is one of the duds among this year's IPOs. 

The stock has pulled back notably from its offer price of $10. Against this backdrop, there's been talk of whether the meal kit company's valuation is attractive enough to solicit M&A interest. 

The Analyst

KeyBanc Capital Markets analyst Edward Yruma initiated coverage of Blue Apron with a Sector Weight rating. 

The Thesis

Though near-term risk remains high, it's offset by Blue Apron's strong positioning in the secularly underpenetrated e-commerce category, analyst Yruma said in a Monday note. (See Yruma's track record here.) 

The analyst said his bias is positive, but he's settled for a Sector Weight rating, given an impending event: The movement of Blue Apron's New Jersey operations to a facility in Linden. 

With the size of the grocery market estimated at $800 billion and the restaurant market valued at $600 billion — sectors Blue Apron operates — KeyBanc estimates the market opportunity for the company at $2 billion-plus over the next five years.

Blue Apron is likely to either pair with a traditional retailer or become "a compelling acquisition target" in light of its "attractive" asset base, Yruma said.

With Blue Apron trading at 0.5 times enterprise value/sales, it's is one of the least expensive names in e-commerce, the analyst said. 

The valuation remains fair given volatility in the business, according to KeyBanc. A number of e-commerce startups such as Dollar Shave, Jet, Bonobos and Chewy.com, have been acquired by strategics for over two to three times sales, Yruma said. 

"We think that APRN could be very attractive to an e-commerce company, grocery store or food company." 

The Price Action

Blue Apron shares closed last Friday at $3.04, roughly 70 percent off its IPO pricing.

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Photo courtesy of Blue Apron.