Uber Technologies (NYSE:UBER) hasn’t had a good run since going public in early May. Uber stock is down 26.7% from its IPO price of $45 through Sept. 23, yet analysts seem to be eating up the ride-hailing app’s bigger picture.
I’ve been skeptical of Uber and Lyft (NASDAQ:LYFT) right from the get-go. I recommended investors avoid both IPOs and there’s nothing the two money-losing stocks have done since to change my mind. It might not be quite the IPO stinker that WeWork has become, but it smells pretty fishy just the same.
If Bud Fox were covering Uber stock, he’d call it “a dog with fleas.” However, analysts don’t quite see it this way. Of the 36 analysts covering Uber stock, 25 have it at overweight or buy, 10 at hold, and just one analyst has a sell rating on its stock. The 12-month target for the Uber stock price is $50.68, 54% higher than its current share price.
I guess I’m the contrarian in the room. Who are these optimistic analysts pumping Uber stock higher? Here are three of the biggest cheerleaders.
Blue Horseshoe Loves Uber Stock
In the movie “Wall Street,” Blue Horseshoe was Gordon Gekko, played by Michael Fox. In real life, Blue Horseshoe is HSBC (NYSE:HSBC) analyst Masha Kahn, who recently upgraded Uber from hold to buy with a target price of $44.
“Looking globally, we point out that Yandex Taxi is already a profitable ride-hailing business and the largest food delivery company − China’s Meituan Dianping − just turned a profit,” Kahn wrote. “Both sectors are sensitive to marketing spend rationalization and we think peak incentives and losses are now behind Uber and Lyft,” Kahn wrote in a recent note.
Interestingly, Kahn lowered her target price by five dollars, a fact that could be explained by the November lock-up expiry, which is likely to create some near-term volatility.
The fact is, the combination of Uber’s dominant position in the ride-hailing business, to its growing Uber Eats business, suggests that the upside for Uber stock could be very real.
At Least 20% Upside
Goldman Sachs (NYSE:GS) is optimistic that the U.S. won’t see a recession for the next two years with the S&P 500 rising by 14% to 3,400. That’s great news if you own stocks like Uber that are down, but hopefully not out.
GS analyst Heath Terry has a buy rating on Uber and a $56 target price, which is considerably higher than the consensus average. With 70% upside a possibility, according to Terry, Uber shareholders ought to be giddy with joy.
“While there are considerable risks in ownership across the space given the intense competition, regulatory issues, and operating pressures, we continue to believe the risk/reward in owning the leader in this space is favorable and we remain Buy-rated,” Terry stated recently.
In Terry’s opinion, the fact that its adjusted EBITDA in the second quarter was better than analysts were expecting at $656 million (more than double over last year), suggests business is pretty good. I wouldn’t characterize it that way, but Terry’s got a good record amongst his analyst peers, so it’s something to consider.
Rideshare Market Stabilizing
Although Uber’s Q2 2019 results were disappointing, JMP analyst Ronald Josey didn’t seem nearly as concerned about the information shared with investors suggesting that the ridesharing market increasingly is a competition based on product and experience rather than solely on price.
“We note promotions (particularly in the U.S.) and sales and marketing spend overall declined from 1Q levels and given the adoption of Uber Rewards and Uber Pro (50% of drivers in the U.S. are enrolled), Uber is creating longer-term relationships with its users,” Josey said in an August note to clients. “Stepping back, in the growing market of ridesharing, the competitive landscape appears to be stable.”
If Uber’s going to move forward on its pathway to profitability, the fact that the market’s matured in this way suggests that it might be possible to scale Uber’s business to the point where it’s making money.
Josey has a market outperform rating and a $56 target price on Uber stock.
While I’m still not sold on Uber stock, I think the fact that so many analysts are positive about Uber’s future is reason enough to take a closer look at its business. I might not rate it a buy, but that doesn’t mean you shouldn’t.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
