Food and restaurant delivery company GrubHub Inc GRUB faces multiple challenges ahead, but they take a backseat to five bullish factors, according to Citi.
The Analyst
Mark May upgraded GrubHub from Neutral to Buy with a price target lifted from $75 to $91.
The Thesis
GrubHub's near-term setup looks "more favorable" for the stock for five reasons, May said in the Tuesday upgrade note. (See his track record here.)
First, recent momentum in gross food sales in the 20% range will likely help GrubHub achieve the necessary efficiencies to achieve management's EBITDA/order guide of $1.52 by the end of fiscal 2019, the analyst said.
Second, firsthand checks across GrubHub's entire platform show the recent addition of locations from seven restaurant chains that rank among the top 50 in the U.S. in terms of sales, he said.
This new addition has not yet been publicly confirmed by GrubHub and is "worth calling out," May said.
Third, recent adjustments to how GrubHub pays delivery drivers on its platform improves transparency and better compensates pay with distance driven and time spent, the analyst said. At the same time, part of the change impacts batch orders and will improve GrubHub's margins, he said.
Fourth, GrubHub is losing some market share to competitors, but the delivery market continues to grow at strong rates, May said. Most recently, the U.S. online food delivery market grew 79% year-over-year in the first quarter of 2019, which marks an acceleration from 72% in the prior quarter, he said.
GrubHub's stock is down more than 50% from its 52-week highs, but the multiple could expand through multiple initiatives, according to Citi.
Price Action
GrubHub shares were up 4.38% at $75.29 at the time of publication Tuesday.
Related Links:
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KeyBanc Cuts GrubHub Estimates, Says Food Delivery Service Losing Share Of Diner Spending
Photo courtesy of GrubHub.
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