Battleground: Analysts clash on GrubHub outlook
Two research firms have published new notes with vastly differing views of the outlook for online food delivery service company GrubHub (GRUB). Credit Suisse downgraded the stock to Neutral from Outperform, citing what it sees as overly optimistic estimates of the profitability of its recent acquisitions. However, William Blair estimates that the company's stock could jump 75% through 2021. CREDIT SUISSE BEARISH: GrubHub recently acquired three companies: Foodler, OrderUp, and Eat24. GrubHub's stock "reflects an optimistic scenario for accretion from recent acquisitions," wrote Credit Suisse analyst Paul Bieber. The analyst estimated that the company's recent acquisitions could increase its earnings before interest, taxes, depreciation and amortization by $17M-$58M in 2018. At current levels, GrubHub's stock reflects the higher end of the range without factoring in the impact of "conservatism" by the company or the risk that it will not execute well, the analyst stated. He predicted that the company's EBITDA guidance would come in at the low end of his estimate in January. Among the factors that lead him to this conclusion are the costs of integrating Eat24 and his belief that GrubHub could invest some of the accretion from its acquisitions in marketing initiatives. Bieber believes that the stock's valuation is fair at current levels. He raised his price target on the name to $53 from $50. WILLIAM BLAIR BULLISH: Based on "a weighted bear/base/bull case valuation framework," analyst Ralph Schackart III estimated that GrubHub's stock could jump about 75% through 2021 to roughly $100 per share. He noted that his estimate assumes that the company will only have about a 5% share of all restaurant orders by 2022. Schackart believes that the original GrubHub business will receive 364,000 orders per day next year, while the companies it acquired will receive about 73,000 orders per day. The analyst kept an Outperform rating on the stock. PRICE ACTION: In morning trading, GrubHub slid about 1% to $55.57.