Canaccord: GrubHub Has Upside

In a report published Monday, Canaccord Genuity analysts maintained a Buy rating on GrubHub Inc (NYSE: GRUB), with a price target of $50, saying that there exists "good potential for upside to the 1Q estimates. The analysts forecasted net diner additions of 350,000, representing a 19 percent decline from the numbers added in 1Q14. The company is, however, expected to increase its Sales & Marketing spend by 47 percent. In the report Canaccord Genuity noted, "We also perform a sampling of GrubHub's restaurant base and find that the significant majority still appear to be in major cities. We believe this bodes well for take rate going forward. We have maintained that GrubHub is an attractive stock given the likelihood of upward estimate revisions, and we continue to think that will be the case in Q1."Total restaurants reached about 36,000 in 1Q, representing low penetration into the US independent restaurant space of about 10 percent. Restaurant density continued to be significantly higher in larger cities, with Tier 1 cities having more than 85 percent of the restaurants, Tier 2 cities accounting for only 12 percent and Tier 3 cities merely 2 percent of restaurants. "There are several competing platforms, and some with a lot of restaurants on board. However, almost none of the competitors enjoy a significant (even noticeable) audience of diners. GrubHub's ability to invest in advertising and diner growth should continue to separate it from the pack," the analysts added.