Buyout Buzz Fuels GRUB Rally

Analyst sentiment surrounding the deal is mixed

Digital Content Manager
Jun 11, 2020 at 10:30 AM
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It was just announced that British-based food delivery name Just Eat Takeaway (JET) agreed to buy GrubHub Inc (NYSE:GRUB) in an all-stock deal worth $7.3 billion at JET's Tuesday closing price. Just Eat Takeaway beat out Uber Technologies (UBER) which was also vying for a deal with GrubHub. Meanwhile, GrubHub sent an email to employees stating that the company will continue to operate as usual, with no anticipated job cuts. 

The acquisition is giving GRUB some momentum this morning, up 6.4% at $62.85, set to topple recent pressure at the $60 level. In the past couple months, the security has been contained between this level and the $55 region, with additional support emerging at the ascending 20-day moving average. Year-to-date, GRUB is up over 22%. 

The deal has elicited a mixed response from the brokerage bunch. No less than four analysts raised their price targets, including Credit Suisse, which lifted its estimate to $75 from $64 but downgraded the stock to "neutral" from "outperform." Meanwhile, Barclays downgraded GRUB to "equal weight" from "overweight" and dropped its price objective to $65 from $79, while BTIG initiated coverage with a "neutral" rating. 

Coming into today, just six analysts covering GRUB considered it a "strong buy" compared to the 13 saying "hold," and the three that called it a "sell" or worse. Meanwhile, the consensus 12-month price target of $55 is still a 10.7% discount to current levels. 

Options traders are a bit more optimistic. In the last 10 weeks, calls have doubled puts at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits higher than 89% of readings from the past year, suggesting a healthier-than-usual appetite for long calls of late. 

Shifting gears to today, calls are flying off the shelves. In just the first two hours of trading, 23,000 calls have changed hands, five times the average intraday amount and almost nine times the number of puts traded. Leading the charge is the July 70 call, with the 62.50-strike call from the same series not far behind and new positions being opened at each.

 

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