[By Al Root]
Shares in Uber Technologies and Lyft —the two dominant ride-hailing franchises—are up more than 20% from 52-week lows, and both stocks are outperforming the S&P 500 over the past three months. Profits aren’t on the horizon, but analysts are becoming increasingly hopeful.
Wedbush analyst Dan Ives, in fact, calls Uber (ticker: UBER) one of his best ideas. Monday, he added the stock to his firm’s “best ideas” list, raising his price target from $45 to $50 a share. Shares were up 1.3% at $36.75 in premarket trading.
“Since its IPO, shares of Uber have been a nightmare for investors,” wrote Ives. At their worst, Uber shares were down more than 40% from their May $45 initial public offering price. Lyft (LYFT) shares fared even worse. At its nadir, Lyft stock was down almost 50% from its March $72 IPO price.
But things are starting to turn around. Uber stock is up more than 40% from its $25.58 low. Lyft stock is up 28% from its low of $37.07.
A gain of 20% from lows is the typical definition of a bull market, while a decline of 10% from highs is typically called a stock-market correction. Of course, it is harder to call bull and bear markets in individual stocks.
Shares of any one company are always more volatile than the broader market. That’s especially true of startup, technology shares—like Uber and Lyft—that don’t produce profits yet.
Ives says Uber is undergoing a metamorphosis and that the sale of an Indian food delivery business shows a new dedication to achieving profitability. “The anchor on the Uber ship in terms of profitability has been Uber Eats,” wrote Ives.
He isn’t alone in his increasing optimism. Almost 70% of analysts covering both Lyft and Uber rate shares at Buy, better than the 55% buy-rating ratio for stock in the Dow Jones Industrial Average. The buy-rating percentages for both Uber and Lyft stocks started creeping up at the end of 2019.
When Lyft came public, less than 20% of analysts recommended its shares. Its shares have made a larger jump in terms of analysts’ opinions than Uber’s, given that Uber was more warmly received by Wall Street when it reached the market. About half the analysts covering the company rated shares Buy at the start of trading.
“While it will take some time for the Street to get its arms around the growth and fundamental profile of Uber—as well as Lyft—and the ride-sharing market over the coming years,” wrote Ives. “We believe this week will likely mark an important first step.”
Uber reports earnings after the close of trading on Thursday. Ives expects the company to beat Wall Street consensus estimates and provide better-than-expected 2020 guidance.
Wall Street expects Uber to report a 67 cent-per-share loss from $4.1 billion in sales for the fourth quarter of 2019. Analysts expect Uber to lose $2.31 a share from $18.1 billion in sales in 2020. Sales are expected to grow about 28% this year.
The ride-hailing industry has other headwinds, beside profits. Investors, on Thursday, will want an update regrading litigation over a California law that classifies Uber’s driver-contractors as employees.
That’s an $8 to $10 headwind for the share price, according to Ives. Still, the current share price represents enough margin of safety for him, as well as other on the Street.