DoorDash Inc (NYSE:DASH) has overtaken Uber Technologies Inc (NYSE:UBER) as Jefferies' top pick in the food delivery sector, with analysts at the brokerage estimating it will double underlying earnings (EBITDA) in the next two years to $2.5 billion.
They have upgraded the stock to ‘Buy’ from ‘Hold’ and raised their price target to $130 from $90.
Shares of the online food ordering and delivery platform were up 4.2% to $98.82 on Monday afternoon.
The EBITDA growth will be driven by increased advertising penetration, margin expansion and reduced losses at its International Restaurant Delivery and New Delivery Verticals segments, the analysts wrote in a client note.
“In addition, our analysis shows the core US Restaurant Delivery business alone is worth more than DASH's total valuation, implying the market is ascribing zero value to Int'l/New Verticals,” the analysts added.
The analysts estimate that the US Restaurant Deliver business will generate $3.25 billion in EBITDA in FY25, $750 million above its consolidated EBITDA estimate due to losses at its International and New Verticals segments.
“This implies DASH has significant control over profitability, given it could reduce spending on non-core investments to drive EBITDA higher,” the analysts wrote.
The analysts have increased their FY24/FY25 EBITDA estimates by 4% and 5%, respectively, to 12% and 17% above consensus.
The revisions concentrated on the New Verticals segment as disclosure at rival delivery company Instacart (NASDAQ:CART) and discussions with industry contacts improved the analysts’ confidence in sector profitability.
The new sum-of-the-parts price target of $130 values the US Restaurant Delivery at $110 per share, International Restaurant Delivery at $12 per share and New Verticals at $8 per share.