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GrubHub: Is $75 A Share On The Way?

Shares of GrubHub (GRUB) extended Friday’s gains, rising as analysts continued to weigh in bullishly on the online food-ordering pioneer on the heels of last week’s earnings report.

GrubHub food order. Illustration: Emily Bary for Barron's

Shares of GrubHub spiked 9% on Friday, a sharp about face from the afterhours losses the stock suffered late Thursday. That’s when GrubHub posted Q2 results, delivered an outlook that failed to impress Wall Street and announced plans to buy the Eat24 business from Yelp (YELP) to boost its selection of restaurants.

Morgan Stanley’s Brian Nowak and his team see the Eat24 acquisition and other deals “building a larger GRUB ecosystem with a path toward $345 million of 2019 adjusted EBITDA.” The group upgraded GrubHub to an Overweight and lifted the price target to $59.

Here are the details:

Building a Larger GRUB Ecosystem, with Path Toward $345mn of 2019 adj EBITDA: We are bullish about GRUB’s higher long-term earnings power and improved competitive positioning post its 3 recently proposed acquisitions (Eat24, Foodler and OrderUp). As detailed in Exhibit 1, our base case shows how the high incremental margin dollars of these acquisitions (with marketing the only material incremental opex) can add ~$80mn (or 35%) to...