Another analyst is feeling highly upbeat about Uber Technologies Inc.’s stock.
“Your bull case has arrived,” Bernstein analyst Nikhil Devnani proclaimed in a Monday note to clients, as he reiterated his view of Uber
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shares as his top pick and lifted his price target to $50 from $45.
At the same time, he sees an upside case where the shares could hit $55 to $60. That hinges on continued profit beats and Uber’s ability to sustain a multiple of about 20 times free cash flow estimates for one year out.
“We believe [Uber] is in the midst of an inflection point in earnings and [free cash flow], making it our top pick in the space,” Devnani wrote. “As a higher cost of capital has put greater constraints on smaller competitors, [Uber] has seen its market share improve alongside its economics.”
Uber is clearly benefiting from a more rational pricing landscape in the ride-hailing industry, realizing advantages from scale, growing or maintaining share in key markets and racking up margin improvements, according to Devnani.
Read: Is a Lyft acquisition in the cards? ‘It’s not so clear-cut,’ analyst says.
He also expects that the company will see its free cash flow improve to nearly $6 billion by 2025, from a current run rate of about $2 billion. That’s “a much quicker build than we see for other stocks right now,” he said, and it sets Uber up “to be one of the most compelling FCF growth stories in Internet over the next 2-3 years.”
Another catalyst on the horizon is the possibility that Uber could get added to the S&P 500. That would require that the ride-hailing giant see GAAP profits over a trailing-12-month basis and in the most recent quarter before its potential inclusion. Devnani thinks it’s possible that Uber could meet the criteria by the second half of 2024, although he acknowledges that the company’s equity stakes, which are marked to market, could affect its ability to hit the goal.
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Bernstein research has indicated that “stocks tend to outperform the 6-12 months leading into S&P inclusion,” Devnani said, and looking past 2024, “consistently improving profitability and a stronger balance sheet could also contribute to better credit ratings.”
Devnani follows Barclays analyst Ross Sandler, who lifted his price target on Uber shares to $57 from $45 Friday while writing that he saw his own upside case of $70.
See more: Could Uber’s stock cruise to $70? Barclays thinks it can keep riding higher in a big way.
Uber shares have rallied more than 80% to start 2023, while shares of smaller rival Lyft Inc.
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are down 8% over the same span.
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