DA Davidson: Buy GrubHub On Weakness After Chanos Shorts Stock

Shares of GrubHub Inc (NYSE: GRUB) fell Thursday after Jim Chanos said he is short the stock due to concerns around competition and labor costs.

Competition is good for the company, and investors should take advantage of Thursday’s weakness, according to D.A. Davidson.

The Analyst

Tom Forte reiterated a Buy rating on GrubHub with a $100 price target. 

The Thesis

Although the offerings and services of Uber Technologies Inc (NYSE: UBER) are superior, GrubHub “does a great job” while keeping its commitment to being the low-cost provider, Forte said in a Friday note. (See his track record here.) 

Increasing competition in restaurant delivery could prove beneficial for GrubHub, the analyst said.

The efforts of competitors are resulting in increased customer awareness of the online restaurant delivery sector when it is still in early stages, he said. 

Growing competition also created a large pool of labor that can be leveraged by any service provider, Forte said. Drivers delivering for multiple brands creates a more favorable scenario for GrubHub than if the company had a monopoly and needed to ensure enough volume to afford all of the drivers, he said. 

Even if California were to enact legislation that causes labor costs to rise, GrubHub could still find a way to circumvent the laws and may not face similar legislation in other states in the U.S., according to D.A. Davidson. 

Price Action

GrubHub shares were down 1.22% at $59.77 at the close Friday. 

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Kynikos Associates President Jim Chanos. Photo by Dustin Blitchok.