Cowen Downgrades Grub on “Narrative Problem,” Recommends Buying Waitr

Cowen, a New York analyst firm that closely follows Grubhub, slightly downgraded its price target for the Chicago-based delivery giant. Following the company’s revised 2019 guidance, the firm lowered its price target from $91 to $86, affirming that it still expects Grub to outperform consensus expectations.

Citing what it called a “healthy core business,” Cowen listed competitive discounting and industry promotions, its 2019 EBITDA guide-down after the second quarter and costs “inevitably ratcheting higher” as the reasons it lowered expectations of share performance.

So far throughout 2019, Grubhub’s stock has decreased significantly from its high-water mark last summer. Its shares are currently trading at approximately $66/share, down from highs near $150/share.

Cowen analysts Thomas Champion, Andrew Charles and Henry Wang wrote that it’s possible their 2020 forecast may be too conservative. They included suggestions for Grubhub, including purchasing Waitr, whose shares are currently trading at less than $2/share, which would give a potential price tag in the $235 million range, including assumed debt and a 40 percent price premium.

They also recommended additional ways of leveraging Grubhub’s recent acquisitions of LevelUp and Tapingo, which haven’t been included in the company’s operating metrics thus far. “This makes sense given they are fundamentally different than delivery orders,” the report read. “However, they contribute substantially to transactional dollar volume on Grub’s platform.”

Their last recommendation was to crank up marketing, specifically around Grub’s “delivery cost value proposition,” which Cowen said is lower than DoorDash, Uber Eats, Postmates, Delivery.com and Caviar, which was recently acquired by DoorDash.

“Of the six delivery providers, Grub was the lowest cost delivery option for two out of the five restaurants, tied with Delivery.com,” it added. “Among the four big players, (Grubhub, DoorDash, Uber Eats, Postmates), Grub was the cheapest option for three out of five restaurants.”

Grubhub’s stock price has edged upward slightly this month, partially boosted by the news that the delivery provider is partnering with McDonald’s to add a delivery option to approximately 500 of McDonald’s restaurants in the greater New York City area.

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