On Wednesday, JPMorgan shifted its stance on Just Eat Takeaway.com NV (JET:LN) (NASDAQ: GRUB) stock, upgrading it from a Neutral to an Overweight rating. The firm also increased the price target to GBP 13.96, up from the previous GBP 13.36.
This change comes after a two-year period during which the firm maintained a Neutral or Underweight rating on the online food order and delivery service.
The upgrade reflects an improved outlook on Just Eat Takeaway's financial performance. According to the firm, Just Eat Takeaway has undergone a significant transition, which includes a shift towards profitability and better cash flow management.
This transition was in response to investor pressure for profit generation and the challenge of rising takeaway prices in a market of contracting consumer budgets.
JPMorgan noted that while Just Eat Takeaway's order growth has significantly declined, the company has started to see positive developments in profits and cash flow. The firm believes that the market has not fully recognized the stabilization of Just Eat Takeaway's operations, the restoration of its balance sheet, and effective cost control by management.
The firm's analysis suggests that Just Eat Takeaway should be valued similarly to pubs and restaurants, rather than as a technology company. This is due to its low top-line growth but resilient cash flows.
In comparison to its peers in the pub and restaurant sector, which trade at 7x EV/EBITDA with an EBITDA CAGR of 6% from 2024 to 2026, Just Eat Takeaway's margin improvement is expected to deliver a more robust EBITDA CAGR of over 23%.
JPMorgan's positive outlook is based on the belief that Just Eat Takeaway has now reached a stable operational phase, with a solid balance sheet and a net debt to EBITDA ratio of 1.2 times.
The firm's management has been commended for their execution of cost control measures, which is anticipated to contribute to the company's valuation and growth profile going forward.
In other recent news, Redburn-Atlantic has initiated a sell rating on Just Eat Takeaway.com NV stock. The firm's analysis cites a potential 17% downside to the current stock price, hinting at a limited upside for the shares.
Redburn-Atlantic's coverage underscores concerns about Just Eat's market position, particularly in Germany and the Netherlands, and its reliance on the third-party model amid stiff competition from rivals like Uber (NYSE:UBER) Eats and DoorDash (NASDAQ:DASH).
The firm also questions the scope for growth in Just Eat's profitability, a perspective that contradicts market expectations. Redburn-Atlantic suggests that the company's current profitability levels might be nearing their peak with limited opportunities for further expansion.
The analysis also indicates potential risks in Just Eat's portfolio strategy, particularly the lack of downside protection from possible portfolio rationalization, such as the sale of the Grubhub business.
InvestingPro Insights
In line with JPMorgan's upgraded outlook on Just Eat Takeaway.com NV, InvestingPro provides additional insights that may be pertinent to investors considering the stock. One notable InvestingPro Tip is that analysts predict the company will be profitable this year, aligning with JPMorgan's view of the company's shift towards profitability. This forward-looking sentiment is crucial for investors seeking growth in their portfolio.
InvestingPro Data also indicates that Just Eat Takeaway generally trades with low price volatility. This could be a reassuring factor for investors who prefer stability in their investments, especially in the context of the firm's improved financial performance and management's effective cost control measures. However, it's important to note that the company suffers from weak gross profit margins and the valuation implies a poor free cash flow yield, which are areas that potential investors might need to watch closely.
While Just Eat Takeaway does not pay a dividend to shareholders, the focus seems to be on reinvesting to achieve profitability and enhance cash flow, as suggested by JPMorgan's analysis. For those interested in a deeper dive into Just Eat Takeaway's financial health and future prospects, InvestingPro offers additional tips, with a total of 4 extra tips available at: https://www.investing.com/pro/GRUB
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