The pandemic has accelerated the food delivery and meal kit trend.
The pandemic has accelerated the appeal of having meals brought to people’s houses, helping food delivery and meal kit companies become part of the so-called stay-at-home trade. With people going out less, restaurants and delivery services have had an increased chance to engage with customers digitally, says Matthew Cochrane, a lead advisor with 7investing. “While not all of this extra growth the pandemic provided is permanent, a great deal of it certainly is,” he says. There are risks, however, including delivery companies that are overvalued, says Morningstar analyst R. J. Hottovy. Competition between the big four food delivery companies — Grubhub, DoorDash, Postmates and Uber Eats — and regulation are also potential downsides, he says. Plus, there’s a lot of pent up demand to eat at sit-down restaurants that could be unleashed once there is a vaccine, Hottovy adds. Here are six food delivery and meal kit stocks to consider.
Grubhub (ticker: GRUB)
Investors have a limited time to continue trading this online and mobile food-ordering and delivery marketplace company because it’s in the process of being taken over by Netherlands-based Just Eat Takeaway.com in a deal expected to be finalized next year. Grubhub’s shares have been on a tear, moving well above where they were before the pandemic. Last week, shares hit their highest point since 2019 after the announcement of a partnership with Lyft (LYFT). Depending on how you categorize the company, it may not be overvalued, says Pierce Crosby, general manager with TradingView. If you compare Grubhub with software companies — after all, it’s a digital platform that connects restaurants with people who want to eat at home — then the company is extremely cheap, he says. Grubhub does become expensive when compared with grocery store or restaurant companies, he adds.
Just Eat Takeaway.com (TKAYY)
Just Eat Takeaway is already a global player in the food delivery business, connecting restaurants and consumers in 24 countries. Its purchase of Grubhub will add the U.S. to its portfolio, and the acquisition deals a blow to the Uber Eats division of ride-hailing company Uber Technologies (UBER), which earlier this year abandoned a deal to buy Grubhub. Cochrane says consolidation is good for the industry because less competition means fewer price wars, helping the remaining players. That said, he also argues that penetration in local markets is more important for food delivery companies than a global network. “A strong presence and robust relationship with partnering restaurants is what really matters,” Cochrane says.
Walmart is poised to be a more substantial player in the food delivery business, Crosby says. The behemoth retailer recently launched its Walmart+ membership option that includes unlimited free delivery of items including fresh produce for $12.95 a month. The service competes with e-commerce giant Amazon.com’s (AMZN) subsidiary Amazon Fresh, but Crosby says food delivery has more potential to move the needle for Walmart than Amazon, which is more focused on its web services business and its delivery of non-food items. “Food delivery is still a hot topic for Amazon,” Crosby says, but it remains the “redheaded stepchild of the group.”
Papa John’s International (PZZA)
This pizza delivery company struggled after the departure of its founder, but Papa John’s now seems to be getting its mojo back. After getting slammed in the pandemic-sparked market meltdown earlier this year, Papa John’s more than made up for the losses and came back to hit a record high. Shares have since pulled back, perhaps offering an entry for bargain hunters. In the second quarter, system-wide comparable store sales in North America soared 28%. “The company quickly pivoted its ordering and delivery processes to integrate contactless delivery into its processes, which proved to be a big hit,” says Cochrane, who thinks the company’s digital ordering channels leave it “well-positioned for the present and future.”
Blue Apron Holdings (APRN)
For bargain hunters, this meal kit stock might be one to consider. The stock is well off its March high of more than $28, but it has still seen significant new business fueled by the pandemic. In the second quarter, APRN increased net revenue by 10% year over year and added approximately 20,000 customers. Still, its shares closed last week at less than $7. Traders are thinking that Blue Apron will ultimately get crushed by Amazon over then longer term, Crosby says. That said, the company is growing revenue substantially and isn’t going away anytime soon, he adds. One way investors could make money on Blue Apron is if it gets acquired. It would make sense for Walmart to buy Blue Apron, Crosby says. The retail giant is already expanding into food delivery, has the inventory to stock meal kits and has the cash to make an acquisition.
Another one of the best meal kit stocks for investors to consider is Germany-based HelloFresh. Earlier this month, the company said it expected third-quarter revenue and adjusted earnings before interest, taxes, depreciation and amortization to be significantly above market expectations. HelloFresh also increased its full-year revenue growth guidance to the 95% to 105% range from a 75% to 95% range. In a presentation discussing its second-quarter results, the company said that a typical family that cooked at home four times per week before the pandemic was cooking seven dinners at home per week in addition to lunches under a work-from-home scenario. HelloFresh saw 18.1 million orders compared to 8.9 million in the second quarter of last year.
Six food delivery stocks and meal kit companies to watch:
— Grubhub (GRUB)
— Just Eat Takeaway.com (TKAYY)
— Walmart (WMT)
— Papa John’s International (PZZA)
— Blue Apron Holdings (APRN)
— HelloFresh (HLFFF)
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6 Food Delivery Stocks and Meal Kit Companies to Consider originally appeared on usnews.com