Market Overview

After Recommending GrubHub For Over A Year, Morgan Stanley Takes Neutral Stance

After Recommending GrubHub For Over A Year, Morgan Stanley Takes Neutral Stance

Morgan Stanley has been recommending investors be buyers of GrubHub Inc (NYSE: GRUB) since Jan. 1, 2017. Now may be the time to move to the sidelines after a 175-percent return, the firm said Wednesday.

The Analyst

Morgan Stanley's Brian Nowak downgraded GrubHub from Overweight to Equal-weight with an unchanged $100 price target.

The Thesis

GrubHub's stock is "fully valued" at $100 per share, as it represents a 22x multiple on Nowak's 2019 EBITDA, a premium to its historical average, the analyst said. A $100 price target also values the core business at $87 per share; the recent addition of Yum! Brands, Inc. (NYSE: YUM) to its delivery platform adds another $13 per share, Nowak said. 

Investors should look for the following over the next year, the analyst said:

  • Updates relating to the integration of Eat24 and benefits from additional restaurant supply.
  • The integration of Yum Brands' restaurants.
  • A take rate convergence of acquired assets to the GrubHub average.
  • Management's ability to lift its organic take rate through sponsored listings.
  • Signs of ongoing momentum in Tier 2 and Tier 3 cities.
  • Core gross food sales and organic growth rates.

Nowak named the following as downside risks:

  • A deceleration of core growth.
  • The scale-up of delivery goes more slowly and expensively than anticipated. 
  • The economics of the Yum Brands deal fail to result in a material earnings lift.
  • Competition from rivals like Uber's food delivery business.

Price Action

Shares of GrubHub were trading lower 3.42 percent at the time of publication Wednesday.

Related Links:

Stifel: After 200% Gain In One Year, GrubHub Has Balanced Risk-Reward

GrubHub Integrates Venmo As Payment Option; Stephens Says Peers Are At Competitive Disadvantage

Photo courtesy of GrubHub. 

Latest Ratings for GRUB

Oct 2019MaintainsEqual-Weight
Sep 2019MaintainsOutperform
Jul 2019MaintainsOutperform

View More Analyst Ratings for GRUB
View the Latest Analyst Ratings

Posted-In: Brian Nowak foodAnalyst Color Downgrades Price Target Restaurants Analyst Ratings General Best of Benzinga


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