GrubHub's Q2 Shows Continued Growth In Underpenetrated Sector, Says Incrementally Bullish KeyBanc

GrubHub Inc. GRUB reported strong second-quarter performance Wednesday while also announcing plans to acquire LevelUp, the restaurant loyalty platform.

The Analyst

KeyBanc Capital Markets analyst Brad Erickson reiterated an Overweight on GrubHub with a price target increased from $115 to $175.

The Thesis

Erickson considers GrubHub’s increased growth and profitability as key catalysts in an industry that is rather underpenetrated. (See the analyst's track record here.) 

The LevelUp acquisition demonstrates the company’s desire to explore more opportunity in food ordering methods and advance in technology and industry expertise, the analyst said. 

KeyBanc raised its revenue estimate for GrubHub, citing higher gross food sales and take rates in the quarter. 

"We continue to expect some deceleration through the end of this year, but the combination of Yum! ramping, potential beginning tailwinds from LevelUp and future unknown acquisitions give us confidence that our estimates are achievable, if not still conservative,” Erickson said.

The analyst said he expects an exponential increase in both sales and marketing spending as GrubHub expands and further develops.

GrubHub should feel little impact from current competitors, Erickson said. 

Price Action

GrubHub shares were up 0.58 percent at $135.51 at the close Thursday.

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Photo courtesy of GrubHub.