Bear of the Day: Grubhub Inc. (GRUB)

Grubhub (GRUB) is an online and mobile food-ordering and delivery powerhouse that agreed to combine with Europe’s Just Eat Takeaway.com last June. The deal is not officially complete and GRUB shares have already fallen 14% in 2021, to lag behind its Internet-Delivery Services industry’s 1% decline.

GRUB Overview

Grubhub’s offerings include roughly 300,000 restaurants in over 4,000 U.S. cities, with a portfolio of brands that includes its namesake, as well Seamless, LevelUp, and others. The food delivery space is highly competitive, with long-term success is likely based on grabbing the most market share, as competitors race to undercut rivals in terms of pricing. These conditions are why Grubhub and Just Eat Takeaway.com struck a deal.

Grubhub went public back in 2014, well ahead of ride-hailing standout, one-time suitor, and now rival Uber (UBER). The stock struggled for years out of the gate, before it exploded from under $40 in March of 2017 to over $140 by the summer of 2018.

GRUB has tumbled 55% since then and closed regular hours Thursday at $64.25 a share, which put it roughly 20% below its January levels. The company’s 2020 revenue still climbed 39% to $1.82 billion, with its recently-reported Q1 sales up 52%. Despite the top-line strength, Grubhub posted an adjusted loss of -$0.56 a share, which was rather shocking considering Zacks estimates called for positive +$0.03 a share.

Zacks estimates call for a rather significant slowdown when it comes to revenue growth, with FY21 projected to climb 23% and FY22 set to jump 16%. Investors should note that GRUB has posted 30% or higher growth every year since it went public. And the company’s consensus earnings estimates have trended in the wrong direction since its report.

Bottom Line

Just Eat Takeaway.com is set to acquire 100% of Grubhub shares in an all-stock combination. The Amsterdam-based firm said in September that it received “all regulatory approvals required in respect of its proposed acquisition of Grubhub.”

The deal is not officially complete yet. However, Grubhub said when it reported its Q1 results on April 28 that it’s no longer issuing forward-looking guidance because of its pending acquisition. “With yesterday's public filing of the registration statement and preliminary proxy statement with the SEC and the Grubhub special stockholder meeting expected to take place in June, we are looking forward to closing the transaction in the coming months and beginning our next chapter as part of the Just Eat Takeaway.com family,” GRUB CEO Matt Maloney said in prepared remarks.

Grubhub currently lands a Zacks Rank #5 (Strong Sell), alongside a “D” grade for Value and “Fs” for Growth and Momentum in our Styles Scores system. GRUB fell another 2% during regular trading hours Thursday, and its industry sits in the bottom 6% of our over 250 Zacks industries.

Given this backdrop and the upcoming merger, investors might want to stay away from Grubhub, especially as the economy reopens and food delivery likely sees a natural slowdown.

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