By Emily Bary
Uber’s sharp stock selloff in the midst of the COVID-19 outbreak gives investors a chance to buy into the company’s long-term growth story for a “half-price” discount, according to a Wells Fargo analyst.
Brian Fitzgerald upgraded Uber’s stock /zigman2/quotes/211348248/composite UBER +1.66% to overweight from equal weight Friday, writing that the shares should be able to rebound once the situation with COVID-19, the disease brought on by the novel coronavirus, is under control. The stock was up about 4% in Friday trading after a strong gain Thursday following comments from Chief Executive Dara Khosrowshahi. Uber and Lyft /zigman2/quotes/208999293/composite LYFT +2.86% shares have each lost about 50% over the past month as the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.24% has decreased 29%.
In the long run, Fitzgerald sees Uber as well-positioned to benefit from increased smartphone penetration and a shift in spending to ride-hailing services from personal car ownership. In the more immediate term, he thinks the company has the financial liquidity to emerge from the COVID-19 crisis and eventually become a consolidator in the food-delivery market.
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“Two-thirds of Uber’s cost structure is variable, creating an automatic shock absorber against decreasing revenues,” Fitzgerald wrote, following an investor update call Thursday in which Uber executives discussed how the pandemic was affecting their finances. “In the event of an 80% decline in ride-sharing volume (versus 4Q19 run rate), Uber would still expect to exit FY20 with $4 billion of unrestricted cash (without the revolver) and break even on ride-sharing segment adjusted [earnings before interest, taxes, depreciation, and amortization].”
Others chimed in about the company’s business-update call as well. While JMP Securities analyst Ronald Josey “materially” reduced his bookings and profit estimates for the rest of the year and into next year, he left the call feeling “that ride-sharing can materially take share of miles-driven in a post COVID-19 world [and] that Uber is best positioned to benefit globally.” He has a market outperform rating on Uber’s stock and lowered his price target to $37 from $56.
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Canaccord Genuity’s Maria Ripps and Michael Graham stayed bullish on the stock and kept their $55 target price unchanged while warning of some near-term pain.
“Perhaps most reassuring to investors was the liquidity update, reminding investors of the strength of Uber’s balance sheet and the flexibility inherent in the company’s capital position even when considering a very pessimistic (perhaps unrealistic) scenario,” they wrote. “We continue to think Uber’s business will be among the most- impacted in our coverage as the coronavirus situation plays out, but we are equally confident this stock should be amongst the best performers on the other side of the pandemic.”