Investors Are Overestimating The Near-Term Benefit To GrubHub's Earnings From Eat24

Citigroup downgraded shares of GrubHub Inc GRUB, as it believes the recent run up in shares is now reflecting the near-term outlook. The firm noted that GrubHub shares have gained 44 percent in the year-to-date period and has added 12 percent or $6 per share since it announced the acquisition of Eat24 from Yelp Inc YELP.

As such, Citi downgraded shares of GrubHub from Buy to Neutral, with a 12-month fair value target at $56 per share. The firm feels at current levels, the company shares do not offer enough upside to warrant a Buy rating.

Citigroup's Mark May said his analysis suggested that the Eat24 acquisition as well as the smaller pending Foodler and OrderUp acquisitions, is worth only $4 per share to GrubHub's equity.

The analyst believes the investors are overestimating the near-term lift to GrubHub's earnings from Eat24, as he is of the view the integration and related cost synergies could take longer to realize.

That said, Citi said it remains positive on long-term fundamental outlook of the GrubHub's business.

In pre-market trading, shares of GrubHub were down 2.03 percent at $53.