Strawberries out on the East End? Long walks at the beach? What are you guys nuts? I'm talking "buy" ratings for Uber Technologies (UBER) . Wait, Sarge, aren't they expected to lose money this year and next? Haven't they experienced five consecutive quarters of slowing revenue growth? Did not just this morning the firm reveal that it has come under federal income tax examination for the years 2013 and 2014? Did not the firm also announce that it is under tax examination by several other state level and international tax authorities. Hmm, did the firm also make public that it expects tax benefits to be reduced due to the form's transfer pricing positions?
Gee guys, I lost track of how many questions you just asked, but the answer is yes to every one of them. Why would you worry? Wall Street analyst after Wall Street analyst has been out and about this morning as the traditional "quiet period" that typically follows an initial public offering has now concluded for UBER. There are no sell ratings, and just a few holds. Since Monday turned into Tuesday, I see at least 13 "Buys" or "Out-performs" out of 14 initiations... and they have the target prices to back that up. Across the industry, the average price target, according to TipRanks, is now $52.76. This includes both the incoming opinions expressed today (Tuesday) and those of analysts that had already been known. (That may have had nothing to do with the offering)
It would be easy to discount this influx of broad analyst opinion, given that many of those making their thoughts known at this time were involved in the underwriting of the deal, and the shares had been trading recently at more than an 8% discount to the IPO price. The usual suspects lined up, so I tried to focus on five star rated analysts that I think to be successful, and made note of some of their comments.
Cowen's John Blackledge (not the quarterback) (PT: $58) believes "the company is well positioned to grow it's Ride-sharing and Eats units as positive secular trends drive more users and frequency."
Bank of America/Merrill Lynch's Justin Post (PT: $53) refers to UBER as a "transitional company" that he sees benefiting from "secular shifts" toward a "sharing economy."
Oppenheimer's Jason Helfstein (PT: $55) notes that "UBER has carved out a categorical market leader position in Ride-sharing and online food delivery." Helfstein feels that these two primary services are under-penetrated globally.
So, I Dug a Little Deeper
I found a four star rated analyst that I did not know, but whose opinion seemed well thought out to my feeble brain. James Cordwell of Atlantic Equities upgraded UBER this past Friday from "Neutral" to "Overweight", but he lowered his Target Price from $55 to $52. He sees a competitive environment for ride-hailing becoming "increasingly benign", and expects that environment to provide for the firm an ability to accelerate revenue growth. This makes the stock in his opinion "more attractively valued."
My thoughts here... the stock likely will continue to see revenue growth for some time to come. True margin expansion? I don't know. The firm guided margin higher post-earnings without offering a lot of detail. From where I stand, Operating Margin of -28%, and Operating Cash Flow of close to -$2 billion doesn't really get my motor running. Management still owns 27% of the firm, which I consider a positive, but I think they are further away than the rest of Wall Street does. I would not be willing to bet large in either direction.
- You could just look for a better name.
- If you think I'm wrong and you love UBER, you could buy 100 shares right now at $41, and perhaps sell one July 19th $45 call against the position in order to drive net basis down to $39.90.
- If you hate it, but short positions are not your cup of tea, you could buy a July 19th $34 put for about $0.50. Probability of success here is small, but there's also a good chance that you waste $50 doing something stupid this weekend.