On Tuesday, BofA Securities adjusted its outlook on Instacart (NASDAQ:CART) shares, raising the stock price target to $38 from the previous $32, while maintaining a Neutral rating on the stock. The revision comes as a result of year-to-date multiple expansion observed in the gig economy subsector.
The firm's decision to increase the price target is based on a recalibration of valuation multiples. Specifically, the gross profit multiple has been raised to 4 times from 3 times, and the EBITDA multiple has been lifted to 12 times from 10 times. The justification provided for the adjustment rests on the broader performance of the gig economy subsector, which has seen valuation expansions since the start of the year.
Despite the increase in target price, BofA Securities' assessment of Instacart remains cautious, with multiples set at a modest discount relative to comparable companies in the eCommerce and gig economy spaces. The firm noted that Instacart's Gross Transaction Value (GTV) growth is lagging behind sector averages, which currently stand at 4.6 times gross profit and 13.4 times EBITDA.
The updated price objective of $38 reflects a new valuation framework applied by BofA Securities in light of the evolving market landscape for gig economy companies. The firm's commentary indicates a recognition of the sector's growth while also acknowledging Instacart's position within it.
Instacart, listed on NASDAQ under the ticker NASDAQ:CART, has been subject to the same market dynamics affecting the gig economy at large. The adjustment by BofA Securities is a direct response to these industry-wide shifts, setting a new benchmark for Instacart's stock performance in the near term.
InvestingPro Insights
Instacart's recent financial data and analyst sentiment provide a nuanced view of the company's position in the market. According to InvestingPro data, Instacart boasts a substantial market capitalization of $9.82 billion.
Notably, the company's gross profit margin for the last twelve months as of Q4 2023 impressively stands at 74.88%, reinforcing BofA Securities' decision to recalibrate the valuation multiples based on gross profit. This high margin indicates a strong ability to control costs relative to revenue, which is a positive sign for investors.
InvestingPro Tips highlight that Instacart holds more cash than debt on its balance sheet, providing financial stability and flexibility. Moreover, the company has liquid assets that exceed short-term obligations, ensuring that it can meet its immediate financial liabilities.
Analysts are optimistic about Instacart's future, with net income expected to grow this year and two analysts revising their earnings upwards for the upcoming period. This aligns with the broader market sentiment that has led to the year-to-date multiple expansion observed in the gig economy subsector.
For those interested in a deeper dive into Instacart's performance and prospects, InvestingPro offers additional insights and tips. There are currently 9 more tips available on InvestingPro for Instacart, which can be accessed at https://www.investing.com/pro/CART. To further enrich your investment strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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