After Recommending GrubHub For Over A Year, Morgan Stanley Takes Neutral Stance

Morgan Stanley has been recommending investors be buyers of GrubHub Inc GRUB since Jan. 1, 2017. Now may be the time to move to the sidelines after a 175-percent return, the firm said Wednesday.

The Analyst

Morgan Stanley's Brian Nowak downgraded GrubHub from Overweight to Equal-weight with an unchanged $100 price target.

The Thesis

GrubHub's stock is "fully valued" at $100 per share, as it represents a 22x multiple on Nowak's 2019 EBITDA, a premium to its historical average, the analyst said. A $100 price target also values the core business at $87 per share; the recent addition of Yum! Brands, Inc. YUM to its delivery platform adds another $13 per share, Nowak said.

Investors should look for the following over the next year, the analyst said:

Updates relating to the integration of Eat24 and benefits from additional restaurant supply.
The integration of Yum Brands' restaurants.
A take rate convergence of acquired assets to the GrubHub average.
Management's ability to lift its organic take rate through sponsored listings.
Signs of ongoing momentum in Tier 2 and Tier 3 cities.
Core gross food sales and organic growth rates.

Nowak named the following as downside risks:

A deceleration of core growth.
The scale-up of delivery goes more slowly and expensively than anticipated.
The economics of the Yum Brands deal fail to result in a material earnings lift.
Competition from rivals like Uber's food delivery business.