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GrubHub stock soars as Citi cites delivery tests as a reason to buy

GrubHub’s (GRUB) stock surged on Tuesday, after analysts at Citigroup upgraded the stock based on the delivery service’s strong growth and pending partnerships.

GrubHub’s shares, traded on New York Stock Exchange, spiked by more than 5% in early U.S. dealings to change hands above $76 per share. Still, GrubHub’s stock value has been cut in half since hitting a 52-week high at $149.35.

In its research note, Citi boosted GrubHub’s shares to a Buy/High Risk, and upped its price target from $75 to $91. The bank cited reports of early tests with large chains, such as McDononalds (MCD) and Starbucks (SBUX), as beneficial to the company in the long run.

The company has been able produce double-digit gains in gross food sales (GFS), Citi said, which “should result in the delivery network efficiency required” to deliver on GrubHub’s fourth-quarter guidance.

KIEV, UKRAINE - 2018/09/16: In this photo illustration, the GrubHub logo seen displayed on a smartphone. Grubhub Inc. is an on line and mobile food-ordering company that connects diners with local restaurants. (Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)

“While GRUB shares still trade at high multiples...they are ~52% below their 52-week high, closer to low-end of their recent historical range, and we do believe the multiple expand if investors reward GRUB for leverage and new chain deals,” the analysts wrote in their report.

However, the report cited restaurants moving to negotiate better deals, which may negatively impact GrubHub’s bottom line. Citi also noted that GrubHub is facing stiffer competition — most notably from Google’s (GOOGL).

“As we’ve written before, Google’s new online ordering platform could increase competition and/or customer acquisition costs,” the analysts concluded.

Donovan Russo is a writer for Yahoo Finance. Follow him @Donovanxrusso.

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