Credit Suisse Upgrades GrubHub Amid Growing Platform

The bullish case for food-ordering and delivery platform GrubHub Inc GRUB can now be made after a busy year full of investments in its network, expanding into new markets and signing new partners, according to Credit Suisse.

The Analyst

Credit Suisse's Stephen Ju upgraded Grubhub from Neutral to Outperform with a price target lifted from $125 to $130.

The Thesis

Grubhub continues to ramp its delivery network, but Ju said the addition of multiple compelling restaurant brands to its platform in 2018 should result in notable volume growth over the near term and long term. Among the 100 biggest restaurant chains in the U.S., 26 boast some form of presence on Grubhub but there is plenty of room to expand. Specifically, the 26 chains combine for 69,101 stores of which only 10,903 are featured on Grubhub.

Meanwhile, Ju said Grubhub's partnership with Yum! Brands, Inc. YUM appears to be on track to achieve the target of onboarding 70 percent of all Yum Brands' stores by the end of 2019. This will help open up a new $10 billion in total potential addressable volume and will also help with improving Grubhub's awareness from the consumer point of view. However, the 12.5-percent service fee on top of a delivery fee and tip charged to customers somewhat erases any competitive pricing advantage as part of the partnership.

The research firm's bullish stance on Grubhub is a long-term call and any negative reaction to the stock from a potential earnings miss should be taken advantage of by investors.

Price Action

Shares of Grubhub were trading higher by 1.5 percent at $81.94 Monday morning.

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Photo courtesy of GrubHub.