Shares of GrubHub (NYSE:GRUB) lost 5% today in morning trading after Morgan Stanley (NYSE:MS) downgraded the company from Overweight to Equal Weight, lowering its price target to $43 from $47.
Morgan Stanley cited competition from Amazon.com (NASDAQ:AMZN) as the reason for the downgrade. Analyst John Glass conducted a survey that showed 26% of Amazon Prime members tried Amazon restaurants delivery in the past 6 months, limiting the potential customers for GrubHub. Additionally, Analyst Brian Nowak noted that restaurants could subsidize one-hour PrimeNow delivery.
Amazon’s acquisition of Whole Foods Market (NASDAQ:WFM) has also increased Amazon’s potential for reaching customers. This deal has created more competition among grocery stocks as well, hurting stores like Costco (NASDAQ:COST) , which was downgraded by Goldman Sachs (NYSE:GS) earlier this month.
Other food delivery services are gaining ground as well, such as UberEats, owned by Uber, and YelpEat24, owned by Yelp (NYSE:YELP) . Nowak sees competitor UberEats “gaining traction.” For example, McDonald’s (NYSE:MCD) has been increasing the number of cities where its franchise locations offer delivery through UberEats, just adding Baltimore today.
Last week, GrubHub hit new all-time highs after Wedbush Securities’ analyst Aaron Turner said that GrubHub was a potential buyout target for Amazon after their Whole Foods Market acquisition. As of Friday’s close, GrubHub shares are up almost 27% year-to-date.
GrubHub remains a Zacks Rank #3 (Hold). The company faces some heavy competition in the near future, but it still has positive year-over-year earnings growth for the current year and maintains some strength.
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