Shares in Just Eat Takeaway.com NV (LSE:JET, NASDAQ:GRUB) PLC jumped 7.8% after Bank of America (BofA) upgraded the stock rating to 'buy' from 'neutral', reflecting the company's improved profitability and strategic potential.
On Wednesday, the company's core earnings came in ahead of expectations with over half its business segments now sustainably in the black.
BofA's note highlights that TKWY is currently trading at 7.7 times its expected 2024 enterprise value to earnings (EV/EBITDA). This ratio, a key metric in valuing a company, suggests that TKWY is undervalued, especially when compared to its peer Delivery Hero (ETR:DHER, OTCQX:DLVHF) (DHER).
Moreover, the delivery firm's current enterprise value to sales (EV/Sales) ratio stands at 0.6 times its 2024 estimates, further indicating a potential undervaluation.
A notable aspect of TKWY's improved financial standing is the profitability in its UK & Ireland (UK&I) and Northern Europe segments.
These areas represent approximately 50% of the group's sales and are now considered sustainably profitable.
According to BofA, Just Eat Takeaway has started to close the performance gap with its competitor Deliveroo (ROO).
Additionally, the American investment bank points out TKWY's strong balance sheet. The company's improving profitability and cash generation capabilities have enabled it to announce a share buyback worth €150 million.
Furthermore, the expected net debt to EBITDA ratio for 2024 is just 0.9 times, providing room for potential further cash returns to shareholders.
Another strategic aspect mentioned in the report is the potential for mergers and acquisitions within the food delivery space.
Just Eat Takeaway has expressed interest in disposing of its Grubhub business, which has been a drag on overall group growth and a significant cash drain.
A successful disposal would not only strengthen the group's balance sheet but also potentially reduce the current valuation drag due to Grubhub's impact on blended growth.
In afternoon trade, the stock was up 83p at 1,176p.