BTIG Bullish On GrubHub, Says Company Can Quadruple Restaurant Footprint

Online and mobile food ordering and delivery company GrubHub Inc GRUB could more than quadruple its existing footprint, according to BTIG.

The Analyst

BTIG's Peter Saleh initiated coverage of GrubHub with a Buy rating and $95 price target.

The Thesis

GrubHub has partnerships with more than 105,000 restaurants across 2,000 cities in the U.S., Saleh said in the Wednesday initiation note.

This pales in comparison to the estimated 647,288 restaurants in the U.S. as of 2017, which implies a potential to increase its footprint by more than fourfold as delivery continues to become a "necessary evil" for the industry, the analyst said. 

Despite the fact that delivery is at best a break-even business for GrubHub, the company likely looks at delivery as a way to accelerate high-margin digital transactions on its platform, he said. 

GrubHub also holds a key advantage as it works with independent restaurants that lack capital, scale and expertise to create their own ordering platforms, Saleh said. On average, Grubhub likely earns more than four times the profit per transaction from an independent restaurant as opposed to a chain, mostly due to a typically larger average check size, he said. 

A push into less profitable quick service restaurants can help the company leverage the fixed costs associated with its driver network, according to BTIG. 

The research firm's $95 price target is based on 25 times EV/EBITDA on 2020 adjusted EBITDA estimates of $366.2 million.

Price Action

GrubHub shares were up 0.81 percent at $71.15 at the time of publication Wednesday. 

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Photo courtesy of GrubHub.