On Friday, Morgan Stanley raised its rating for Just Eat Takeaway.com NV (JETL:LN) (NASDAQ: GRUB) stock to Overweight from Equalweight and increased the price target to GBP12.90 from GBP12.00.
The food delivery company, which has faced a challenging post-Covid market environment with a significant drop in orders, is beginning to see a shift in investor sentiment.
The firm noted that Just Eat Takeaway has dealt with high cash outflows from 2021 to 2023 and lost market share in crucial regions including the UK.
Additionally, the company's US subsidiary, Grubhub, has underperformed, contributing to the negative sentiment. The financial community has been particularly concerned with Grubhub's impact on the group's free cash flow (FCF) and the approximately €6 billion in write-offs over the past three years.
Moreover, Grubhub experienced a roughly 25% decrease in US monthly active users since 2019, which marks the period before the pandemic and its acquisition by Just Eat Takeaway.
However, Morgan Stanley suggests that the outlook for Just Eat Takeaway may be improving. The firm anticipates that the negative effects associated with Grubhub could diminish, especially with the potential for fee caps to be raised in New York, which could bolster profitability.
Grubhub's achievement of FCF break-even in the first half of the year, prior to accounting for working capital changes, is also seen as a positive development.
The report further highlights recent operational improvements in Just Eat Takeaway's core markets. These enhancements, along with the current valuation of the company's shares, have led to the more optimistic assessment by Morgan Stanley.
The upgrade and revised price target reflect a belief that Just Eat Takeaway's financial position and market performance are on an upward trajectory.
This reassessment could signal a turning point for the company as it works to overcome the hurdles it has faced in the rapidly evolving food delivery industry.
InvestingPro Insights
As Just Eat Takeaway.com NV (GRUB) navigates through its post-Covid recovery, insights from InvestingPro shed light on key financial metrics and analyst expectations that may influence investor decisions. According to InvestingPro, Grubhub trades with low price volatility, which could appeal to investors looking for stable stock performance in the volatile food delivery market. Despite challenges, analysts predict that the company will be profitable this year, signaling a potential turnaround from previous losses.
On the downside, Grubhub suffers from weak gross profit margins, which have been a concern as the company strives to improve its financial health. Additionally, the valuation implies a poor free cash flow yield, which reflects the concerns highlighted by Morgan Stanley regarding the company's free cash flow. It is also noteworthy that Grubhub does not pay a dividend to shareholders, which may influence the investment decisions of income-focused investors.
For those looking to delve deeper into the financial nuances of Just Eat Takeaway and its subsidiary, Grubhub, InvestingPro offers additional expert tips and comprehensive metrics. There are currently four more InvestingPro Tips available, providing investors with a more detailed analysis to guide their investment strategies. To explore these tips, investors can visit: InvestingPro.
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