After a two-year rollercoaster ride, the timing seems right to get bullish on Uber Technologies (NYSE:UBER) stock.
The world’s largest ride-hailing app surged more than 10% during the past five days after securing an agreement to list all New York City taxis on its app. Shares closed Wednesday a $36.58.
The rally comes after the San Francisco-based company lost almost a third of its value during the past year, mainly due to macroeconomic factors like the COVID-19 pandemic and, more recently, the broad selloff in growth stocks.
However, the positive developments in recent days show that this is an excellent time to take advantage of Uber’s long-term weakness.
In the first alliance of its kind in the US—as well as an effort to ease a driver shortage and pressure on fares—Uber reached a deal with the New York City Taxi & Limousine Commission’s technology partners. Their apps, Curb and Arro, power 100% of the city’s yellow taxis and will now allow riders to book trips in taxis through the Uber app.
The partnership will be piloted in the spring and roll out more widely in the summer, according to Guy Peterson, Uber’s director of business development, who added in a statement last Thursday:
“This is a real win for drivers. No longer do they have to worry about finding a fare during off-peak times or getting a street hail back to Manhattan when in the outer boroughs. And this is a real win for riders who will now have access to thousands of yellow taxis in the Uber app.”
Furthermore, according to the New York Times, the company is close to securing a similar partnership with San Francisco’s taxis, opening a door for more collaborations in other global jurisdictions.
These initiatives are especially relevant as many parts of the world face driver shortages, regulatory scrutiny, and stiff resistance from traditional cab operators.
Stock Is Undervalued
Some Wall Street analysts think that Uber stock is currently undervalued, given it's well positioned to benefit from the economic reopening.
According to the consensus estimate of 46 analysts surveyed by Investing.com, Uber shares have a 62% upside potential from their current level.
Source: Investing.com
Jason Tauber, portfolio manager at Neuberger Berman, told CNBC that Uber’s New York taxi deal is a significant step toward the company’s goal of becoming a super app for transportation. He also highlighted that the company is gaining substantial market share in home delivery of food and grocery shopping. He added:
“Capital is drying up, which is ultimately good for them. This is a positive inflection point in their business. This is not a business that can sustain many players.”
Earlier this month, Uber raised its forecast for the current quarter, suggesting that ride-hailing demand is returning in the post-pandemic environment.
Adjusted earnings before interest, tax, depreciation, and amortization are expected to jump from $130 to $150 million. Those figures represent a solid improvement from the $100 to $130 million Uber projected when it announced fourth-quarter results last month.
In a filing with the Securities and Exchange Commission, Chief Executive Officer Dara Khosrowshahi said:
“Our mobility business is bouncing back from Omicron much faster than we expected. Whether for travel, commuting, or going out at night, we’re seeing healthy and growing demand across all use cases, highlighting just how eager consumers are to get moving again.”
Bottom Line
In the post-pandemic environment, Uber is in an excellent position to show consistent profitability, especially after its significant diversification and cost-cutting measures. Furthermore, the current long-term bearish spell offers a perfect opportunity to buy this stock.