Bank Of America's Appetite For GrubHub Fades

Shares of GrubHub Inc GRUB have gained more than 180 percent over the past year, which makes the stock "less attractive" at current levels, according to Bank of America Merrill Lynch. 

The Analyst

Bank of America's Nat Schindler downgraded GrubHub's stock rating from Buy to Neutral with an unchanged $102 price target.

The Thesis

GrubHub's fundamentals remain "solid" and investor concerns surrounding the growing food delivery space are "overstated," Schindler said in the downgrade note. (See Schindler's track record here.)

The company continues to improve its scale and introduce new partnerships that will contribute to 50-percent growth in active diners on the platform in 2018 and another 14 percent in 2019, the analyst said. 

The Street has been active in boosting the consensus 2018 and 2019 EPS estimate and this trend is likely to continue throughout 2018, Schindler said. Upside to current estimates is likely to come from faster integration of Eat24, the inclusion of Yum! Brands, Inc. YUM's restaurants and the potential for even more partnership announcements, he said. 

Despite clear momentum in the near term, GrubHub's stock valuation needs to be taken into consideration, the analyst said. Shares are trading at 44x the analyst's 2019E EPS — a premium to other high-growth lead generation stocks that trade at about a 38x multiple. GrubHub is "fairly valued" at current levels, according to BofA. 

Price Action

GrubHub shares were down 3.81 percent at $98.09 Tuesday morning. 

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Photo courtesy of GrubHub.