GrubHub Gains as Barclays Upgrades on Hopes for Board Action

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(Bloomberg) -- GrubHub shares are trading higher Friday after Barclays raised its investment opinion two notches, to overweight from underweight.

The “irrational competitive landscape” in online food delivery over the past 15 months, and GrubHub executives’ “ill-timed strategic investments, and poor execution” have resulted in the stock plunging 75% to two-year lows, analyst Deepak Mathivanan told clients. As such, Mathivanan has a few requests for the GrubHub board of directors, and upgraded “on the hope of swift execution.”

One request to the board is to explore consolidation with another leading food delivery player, which should result in “meaningful synergies.” Mathivanan believes that under the right M&A scenario, shares could be valued at “well north of $50 per share.” He noted the German market as a case study, where Ebitda improved after Takeaway.com NV’s acquisition of Delivery Hero SE’s German business and Takeaway shares rallied more than 75% since the December announcement. Delivery Hero climbed almost 60%.

Another recommendation for GrubHub directors is to “reduce investments on unproven areas.” There’s been little benefit from the $100 million in additional marketing investment over the past 12 months, and now GrubHub is planning to spend another $150 million on “other unproven strategies,” he said. “We don’t believe these programs are likely to help achieve sustainable growth in this intense competitive environment.”

Mathivanan also urges asset value preservation “before it’s too late.” GrubHub has “meaningful asset value” from its corporate offering and NYC/Chicago consumer businesses. “These assets are under intense attack from competition.” The analyst believes that GrubHub is a “dominant brand” that is worth “a lot more than current valuation under the right strategy in a rational market.”

GrubHub shares rose as much as 5.7% Friday to $40.69. Barclays’ positive rating comes after Mathivanan’s 22 months in the bearish camp, during which time GrubHub fell 49% compared with the S&P 500’s advance of 8.5%.

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