GrubHub's Brand Is Becoming 'Second Nature' For Food Delivery, Canaccord Says

GrubHub Inc GRUB’s rapid expansion could soon make it synonymous with food delivery in the way Uber is with ride-hailing and Amazon is for household items, according to Canaccord Genuity.

The Analyst

Analyst Maria Ripps initiated coverage of GrubHub with a Buy rating and $130 price target.

The Thesis

Food delivery services have gone mainstream, but still have plenty of room for growth beyond big cities, Ripps said in the Thursday initiation note.

Companies that benefit from a large addressable market, low penetration, competitive advantages and strong management are usually good investments, the analyst said.

“We think this describes GRUB stock now more than ever, following the company’s aggressive and insightful move into the mass market over the past few years."

GrubHub’s business in major markets like New York City and Chicago continues to grow and is highly profitable, Ripps said. At the same time, the company’s rapidly expanding chain relationships and delivery network means that GrubHub is accumulating more diners and simultaneously becoming more attractive to restaurant owners, she said.

“We believe in GRUB's approach of building a brand that can make its platform as second nature for food ordering as Uber is for hailing a ride or as Amazon is for buying batteries.”

A recent chain partnership with YUM! Brands, Inc. YUM, the Eat24/Yelp integration and expanded brand-oriented advertising are encouraging signs, Ripps said.

The initiatives could drive further growth acceleration, and GrubHub could see 40-percent revenue growth in 2020 in an upside scenario, Ripps said.

The food takeout industry is a $180-billion market that has still yet to transition fully online, the analyst said.