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Why Is GrubHub (GRUB) Stock Rising Today?

Shares of GrubHub GRUB moved more than 5.3% higher in morning trading Wednesday after a key analyst upgraded the stock and moved their price target higher, citing the company’s dominance in the booming food delivery market.

Indeed, Cowen analyst Thomas Champion raised his rating on GRUB to “Outperform” from “Market Perform” and bumped his price target to $54 from $45. Champion’s new price target represents a 24% premium from the stock’s Tuesday close.

The updated call came in conjunction with a 70 page report—co-authored by Cowen’s Andrew Charles and John Blackledge—that included the findings of a massive new consumer survey. These results, which were based on the responses of 2,800 consumers, project a continued rise in the demand for online delivery services.

“Our new estimates call for delivery to grow from $43B in 2017 to $76B in 2022, a 12% CAGR. In our view, the key driver is Online order growth, which we forecast to rise from 46% of the market to 73% by 2022,” the analysts wrote.

“Our view of delivery contrasts with the growth profile of the mature total restaurant industry, which we expect to grow from $539B in 2017 at a 3.5% 5-yr CAGR. We forecast delivery will account for 30% of industry sales growth on average in 2017-22, but see more uncertainty associated with margins.”

One would assume that this would spell good news for GrubHub, one of the most recognizable names in online delivery. The analyst team from Cowen agrees:

“Given GRUB's usage advantage, we find competitive fears overstated… Against this larger, more rapidly growing industry backdrop, we are more confident in GRUB's Gross Food Sales (GFS) prospects. We model 14% transactions growth and 5% pricing growth 2017-22 and forecast GFS rising from $3.7BN to $8.8BN in 2022, a 19% five year CAGR and above our prior 17% forecast.”

The mention of GrubHub’s competition is important, especially considering the recent skepticism that the company has faced. Just a few weeks ago, GRUB was downgraded by an analyst team from Morgan Stanley who cited increased pressure from Amazon AMZN as a reason to be hesitant on the stock (also read: Here's Why Morgan Stanley Downgraded GrubHub Stock).

Morgan Stanley’s John Glass said that a recent survey showed 26% of Amazon Prime members have tried Amazon’s restaurant delivery service in the past 6 months, while fellow analyst Brian Nowak noted that restaurants could potentially subsidize one-hour PrimeNow deliveries.

And Amazon is just one of many foes for GrubHub. The food delivery giant is also feeling the pressure from services like Uber’s UberEats and Yelp’s YELP YelpEat24.

Nevertheless, Cowen’s latest data might imply that there is plenty of growth to spread around throughout the delivery space, and either way, GrubHub’s lead in the industry might already be too great for its competition to gain meaningful ground.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
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