Why This Analyst Still Loves GrubHub

In a report published Friday, JMP Securities analysts maintained a Market Outperform rating on GrubHub Inc GRUB, while raising the price target from $54 to $55.

"Our recent analysis of GrubHub’s restaurant growth suggests the service is adding restaurants at an annual pace of ~15% and is doing so across all markets—Tiers 1, 2, and 3. Given the efficiency of GrubHub’s two sided network, we believe more restaurants suggest continued strong active diner demand, which should, in turn, lead to faster daily active grubs (DAG) growth," the analysts wrote.

In the report JMP Securities mentioned three key takeaways from its restaurant analysis:

1. more cities have 50+ restaurants
2. GrubHub is adding restaurants at an annualized growth rate of about 15 percent, suggesting strong active diner demand
3. restaurant growth in Tier 2 and Tier 3 cities is ramping

"Overall, we believe GrubHub is among the cleanest names in our coverage universe in terms of growth trajectory and momentum as it operates in one of the largest and more fragmented verticals— food takeout and delivery—online and is doing so at scale with its 33,000+ restaurants, in 800+ cities, with 5+ million active diners, while also solving for delivery," the analysts added.