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Here's Why You Should Hold Grubhub Stock in Your Portfolio

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Grubhub (GRUB - Free Report) earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, delivering an average positive earnings surprise of 25.6%.

With expected long-term earnings per share growth rate of 25% and a market cap of $12.99 billion, it seems to be a stock that investors should keep in their portfolio for now.

Let’s take a look at the factors that have been driving the company’s performance.

Grubhub is benefiting from an efficient delivery network and new quality-focused restaurant partners as evident from its second-quarter 2018 results.

In the second-quarter 2018, revenues climbed 51% year over year to $239.7 million and comfortably beat the Zacks Consensus Estimate of $233 million. Earnings of 50 cents per share beat the Zacks Consensus Estimate of 41 cents. The figure soared 92.3% on a year-over-year basis driven by robust increase in orders and revenues as well as improved operational efficiency.

Notably, the company also recently completed the acquisition of LevelUp, which manages digital ordering and payment solutions for national and regional restaurants, for $390 million in cash. The acquisition was announced at the time of the release of second-quarter 2018 results.

The company has been active on the acquisition front, acquiring the likes of Yelp’s (YELP - Free Report) Eat24, 27 assets of OrderUp (in 2017) and Boston-based Foodler, which have broadened its portfolio of restaurants.

Collaborations with Yelp and Groupon (GRPN - Free Report) have made Grubhub the preferred partner for online ordering from restaurants on these platforms. Additionally, the $200 million from Yum! Brands (YUM - Free Report) , which also made it the exclusive delivery partner of KFC and Taco Bell, has further strengthened its presence.

All these assisted the company in launching Grubhub Delivery services in more than 70 new markets at the end of second-quarter 2018. The company is also integrating with the travel company, TripAdvisor, which will enable U.S. users to browse for eateries and order food. This will aid financials going ahead.

However, increasing expenses due to planned expansion into new delivery markets are likely to keep margins under pressure. Moreover, rising competition from Amazon and Uber Eats is a major headwind.

Nevertheless, acquisitions and partnerships are anticipated to help Grunhub rapidly penetrate the expanding food takeout market in the United States and strengthen its foothold in the market.

All these justify this Zacks Rank #3 (Hold) stock’s retention in investors’ portfolio.

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

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Groupon, Inc. (GRPN) - free report >>

Yelp Inc. (YELP) - free report >>

GrubHub Inc. (GRUB) - free report >>

Yum! Brands, Inc. (YUM) - free report >>

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