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Will Growth in Diner Base Aid GrubHub's (GRUB) Q4 Earnings?

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GrubHub Inc. (GRUB - Free Report) is set to release fourth-quarter 2017 results on Feb 8.

Last quarter, earnings of 28 cents per share beat the Zacks Consensus Estimate and increased 21.7% year over year. The company has a mixed record of earning surprises in the trailing four quarters, delivering an average positive surprise of 8.33%.

Revenues of $163 million beat the consensus mark of $159 million and improved 32% from the year-ago period.

Notably, shares of GrubHub have gained 68.3% in the past year, significantly outperforming the industry’s 45.7% rally.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

GrubHub diverse restaurant base, broader marketing reach and continuous improvement in products are helping it gain new diners. This was evident in the third quarter as Active Diners increased 28% year over year to 9.81 million. Management stated that this was the highest rate of organic diner growth in the last 1.5 years.

For the fourth quarter, the Zacks Consensus Estimate for Active Diners is pegged at 11.9 million, indicating a 45.1% increase from the figure reported in the prior-year quarter.

GrubHub’s expansion outside the Tier 1 market is a positive. The company’s restaurant network has expanded 60% in the last 12 months (as of the end of third-quarter 2017), with significant growth coming from Tier 2 and Tier 3 markets. GrubHub’s delivery is available in around 80 markets in more than 800 cities.

We believe that GrubHub’s partnerships with the likes of Groupon, Yelp (YELP - Free Report) and The Cheesecake Factory will continue to drive the customer base. GrubHub’s recently completed acquisitions of Eat24, OrderUp and Boston-based Foodler have broadened its portfolio of restaurants.

The addition of Eat24 strengthens the company’s position across Tier 1 markets and almost doubles business in a large number of Tier 2 markets. Management stated the acquisition helped it gain new customers in markets like Miami, San Diego, Seattle, Las Vegas, Dallas and Houston.

We anticipate the aforementioned factors to have aided the company in attracting diners to try GrubHub services in the fourth quarter, thereby contributing to revenues.

However, increasing expenses might keep margins under pressure.

GrubHub Inc. Price and EPS Surprise

GrubHub Inc. Price and EPS Surprise | GrubHub Inc. Quote

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

GrubHub has a Zacks Rank #2 and its Earnings ESP is -4.49%. Therefore, our proven model does not conclusively show that the company is likely to deliver a positive surprise this quarter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With a Favorable Combination

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Applied Materials Inc. (AMAT - Free Report) has an Earnings ESP of +0.57% and a Zacks Rank of 2.

Agilent Technologies Inc. (A - Free Report) has an Earnings ESP of +1.98% and a Zacks Rank of 3.

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