GrubHub Inc (NYSE: GRUB)'s first-mover
advantage in food delivery positions the company to capitalize on rapid growth in the sector, according to Stephens.
Its announcement Tuesday that Paypal Holdings Inc (NASDAQ: PYPL)'s Venmo is
being integrated into the platform makes it easier than ever before to buy full-service restaurant delivery and split the
bill with friends.
The Analyst
Stephens analyst Will Slabaugh initiated coverage of GrubHub with an Overweight and $120 price target.
The Thesis
With nearly three times the market share of its closest competitor DoorDash and almost four times the market share of Uber Eats,
Slabaugh said he views GrubHub
as the clear leader in the domestic online ordering and delivery space and does not forecast a slowdown in growth anytime
soon.
GrubHub’s
scale will result in continued 20-25-percent organic growth without accounting for the possibility of future partnerships, the
analyst said.
“Given GRUB’s first-mover advantage and aggressive acquisition strategy, we view the majority of its peers at competitive
disadvantages that could result in question marks around the true opportunity of many of their business models,” the analyst
said.
Even with a premium valuation, GrubHub's total addressable market is highly attractive and supports near- and long-term
investments in the business, Slabaugh said, adding that he views the company as a desirable acquisition target over time.
Few growth stories exist in full-service dining, but to-go and delivery have been increasingly important drivers of same-store
sales growth in recent years, Slabaugh said. Darden Restaurants, Inc. (NYSE: DRI)-owned Olive Garden was an early mover in to-go, leading to consistent
double-digit growth for several years, the analyst said. To-go now comprises 13 percent of Olive Garden's business, the analyst
said.
With the knowledge of how important delivery and to-go service is becoming to restaurants that did not traditionally offer the
option, partnerships are becoming vital to both parties, Slabaugh said.
GrubHub’s recent partnership with YUM! Brands, Inc. (NYSE: YUM) is a key catalyst moving forward, he said, with GrubHub providing exclusive and
dedicated support for KFC and Taco Bell’s online delivery channels. YUM agreed to purchase $200 million in
GrubHub shares, to be used to accelerate the expansion of the company’s delivery network and improve the ordering
experience.
“We view this partnership as a game changer, due to its introduction of incremental and broad-reaching scale into the GRUB
system, the upcoming stream of revenue and profits that we expect to build as franchisees buy into the GRUB model and added
legitimacy for GRUB’s platform,” Slabaugh said.
Price Action
GrubHub shares were up over 5 percent following the upgrade, at last check trading at $103.44.
Related Links:
Stifel:
After 200% Gain In One Year, GrubHub Has Balanced Risk-Reward
Bank Of
America's Appetite For GrubHub Fades
Photo courtesy of GrubHub.
Latest Ratings for GRUB
Date |
Firm |
Action |
From |
To |
Apr 2018 |
Stephens & Co. |
Initiates Coverage On |
|
Overweight |
Mar 2018 |
Stifel Nicolaus |
Downgrades |
Buy |
Hold |
Mar 2018 |
Bank of America |
Downgrades |
Buy |
Neutral |
View More Analyst Ratings for
GRUB
View the Latest Analyst Ratings
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