BofA On Uber's Legal Setback: 3 Potential Scenarios

Uber Technologies Inc UBER suffered a "legal setback" after a California court ordered that the ride-hailing company must label drivers as employees, and the company faces three possible scenarios ahead, according to BofA Securities.

The Uber Analyst: Justin Post maintained a Buy rating on Uber's stock with an unchanged $44 price target.

The Uber Thesis: Uber and rival ride-hailing company LYFT Inc LYFT have 10 days to appeal the decision, Post said in a Tuesday note. (See his track record here.)

The analyst named three potential outcomes: 

• Uber could be granted a "mandatory injunction" on appeal that would allow Uber to operate as-is through November, when the people vote on Proposition 22, which would supersede the ruling, he said. 

It should be noted the law impacts only the ride-sharing unit and does not impact Uber Eats, Post said. 

• Under a prohibitive injunction, Uber would have to comply with the classification immediately. This could lead Uber to raise prices as much as 20% to 30% in large cities — and even more in suburbs — and kick off many drivers from the platform to account for lower demand, the analyst said. 

• Uber's management could decide under this scenario to suspend most or all rideshare services until November. This option is "more likely," as Uber likely lacks the infrastructure to transition thousands of drivers from independent contractors to employees, he said. 

If Uber ultimately emerges on the losing side of a legal battle, there is a risk that other states could follow suit, Post said, adding that Uber's internal polling data shows support for Proposition 22 to pass.

UBER Price Action: Shares of Uber were trading lower by 1.39% at $31.82 at the time of publication Tuesday. 

Related Links:

Uber, Lyft Must Classify Drivers As Employees, In Compliance With California Law, Judge Rules

Should Investors Continue Riding With Uber? The Street Weighs In

Photo courtesy of Uber.