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Here's Why Morgan Stanley Downgraded GrubHub (GRUB) Stock
Shares of GrubHub lost 5% today in morning trading after Morgan Stanley downgraded the company from Overweight to Equal Weight, lowering its price target to $43 from $47.
Morgan Stanley cited competition from Amazon.com (AMZN - Free Report) as the reason for the downgrade. Analyst John Glass conducted a survey that showed 26% of Amazon Prime members tried Amazon restaurants delivery in the past 6 months, limiting the potential customers for GrubHub. Additionally, Analyst Brian Nowak noted that restaurants could subsidize one-hour PrimeNow delivery.
Amazon’s acquisition of Whole Foods Market has also increased Amazon’s potential for reaching customers. This deal has created more competition among grocery stocks as well, hurting stores like Costco (COST - Free Report) , which was downgraded by Goldman Sachs earlier this month.
Other food delivery services are gaining ground as well, such as UberEats, owned by Uber, and YelpEat24, owned by Yelp (YELP - Free Report) . Nowak sees competitor UberEats “gaining traction.” For example, McDonald’s (MCD - Free Report) has been increasing the number of cities where its franchise locations offer delivery through UberEats, just adding Baltimore today.
Last week, GrubHub hit new all-time highs after Wedbush Securities’ analyst Aaron Turner said that GrubHub was a potential buyout target for Amazon after their Whole Foods Market acquisition. As of Friday’s close, GrubHub shares are up almost 27% year-to-date.
GrubHub remains a Zacks Rank #3 (Hold). The company faces some heavy competition in the near future, but it still has positive year-over-year earnings growth for the current year and maintains some strength.
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