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Blue Apron: Bullish calls not all they're cooked up to be

Yahoo Finance’s call of the week is Blue Apron (APRN), as the meal kit delivery company received a heaping portion of bullish commentary from Wall Street analysts.

On Monday, 11 banks picked up coverage of the stock. That’s after the post-IPO blackout period ended for firms involved in the offering.

What did we get? Seven buy ratings, and four neutral ratings. That’s a pretty strong vote of confidence, with price targets ranging from $7 to $14.

This is particularly impressive given that the stock has yet to trade significantly above its already discounted $10 IPO price, with shares dropping to a low of $6.36 last week. And while these notes sent the stock soaring on Monday (up 15%), it was short-lived.

Here are some of the reasons analysts are optimistic:

  • RBC and Oppenheimer cite Blue Apron’s large total addressable market (TAM) as a reason for their positive outlook. Oppenheimer puts the total potential market at $524 billion, which should “buoy the growth of the meal kit industry and drive Blue Apron’s revenue growth over time.”
  • Goldman believes that by 2018, Blue Apron’s inventory will equal 15% of quarterly sales. That’s a strong vote of confidence, as it’s not only much lower than Blue Apron’s current inventory that’s 20% of quarterly sales, but way better than almost everyone else in the industry.
  • Oppenheimer justifies its $11 price target, which is 1.5x Blue Apron’s 2018 estimated sales and a 32% premium to its peer group, by the company’s 2016-2019 expected revenue growth rate of 28%. The peer group– Shutterfly, Cimpress, Sprouts, Wayfair and Whole Foods Markets– has a 2016-2019 expected revenue growth rate average of 12%.

Many analysts cited risks of competition from Amazon, especially as the e-commerce giant gets into the grocery and meal delivery space. Then to make matters worse, Blue Apron had an executive level shake-up this week with the COO stepping down. And if history is any guide, Snap, another newly IPO’d unicorn, also got a slew of positive ratings from Wall Street after the IPO blackout period ended. Yet the stock continues to slide.

No matter what, Blue Apron has a long road ahead to prove itself, and it’ll take a lot more than bullish Wall Street notes.