Why Grubhub May Be Undervalued by Over 30%

Jon C. Ogg

Things haven’t been so great for Grubhub Inc. (NYSE: GRUB) shareholders over the past six months. Even though a strong market brings the analogy of “rising tides are supposed to lift all ships,” Grubhub hasn’t been feeling the love seen in other online and new economy stocks.

According to BTIG’s Peter Saleh, better days are ahead and Grubhub might really be in store for 30% upside. Shares of the food delivery marketplace were started with a Buy rating and a $95 price target. That represents about 34% upside from the prior $70.58 close.

What’s interesting about this view, even if analyst price targets have come down handily since late 2018, is that the $95 target and the 34% implied upside is still below the Refinitiv consensus analyst price target of $104.38.

Much of the bullish thesis here is based on optimism that Grubhub can add more restaurant chains to its expanding list of offers. Saleh called Grubhub being well positioned to capitalize on the off-premise trends that are helping to drive industry trends at this time. Adding those digital options for delivery and pickup is an opportunity for an increased base and increased offering from many existing customers.

While the space is getting ever more competition, sometimes with lower prices, there is an opportunity viewed by Saleh that there are more companies now willing to work with more than one or two delivery and digital partnerships to more easily capture existing users.

By expanding to roughly 300 markets, Grubhub is effectively covering the bulk of the trade areas where the service would be applicable and used.

And while the price target is lower than average in this BTIG call, the earnings estimates are more or less in line to a tad under on earnings per share (EPS), revenues and EBITDA. Grubhub’s consensus estimates from Refinitiv are $1.41 EPS and $1.37 billion in revenues for 2019, compared with $1.66 EPS and $1.01 billion in revenue for 2018. The consensus estimates for 2020 are $2.22 per share and $1.73 billion.

While Grubhub shares were up 2% at $72.00 in early trading indications on Wednesday morning, its shares were up only 0.8% at $71.13 later in the day. Its 52-week range is $65.51 to $149.35, and its market cap was $6.5 billion on last look.