Uber Technologies, Inc. (UBER) has rallied to an all-time high after completing its acquisition of privately held Postmates, increasing the company’s already large footprint in the wildly successful but still unprofitable home delivery space. The acquisition, first announced in July, wasn’t expected to close until the first quarter of 2021, but the Justice Department gave the go-ahead in November after California voters overturned a law that would have forced independent drivers to be designated as employees.
It still isn’t clear how Uber paid or is paying for the completed deal, which was touted as a $2.65 billion all-stock transaction. The company has not announced a secondary offering yet but estimated in July that 84 million shares of common stock would be needed for fully diluted equity. Sidelined investors should keep that in mind because the recent run-up in share price could be directly related to that event.
Wall Street consensus has finally boarded the bull train on Uber stock, with a “Strong Buy” rating based upon 19 “Buy” and 2 “Hold” recommendations. No analysts are recommending that shareholders close positions and move to the sidelines at this time. Price targets currently range from a low of $41 to a Street-high $65, while the stock is set to open Thursday’s session on top of the median $53 target. This placement suggests that the current uptick will slow or stall in coming weeks.
The company came public at $42.00 on May 10, 2019, and entered an immediate uptrend that ran out of steam at $47.08 in late June. Mixed price action carved a narrow topping pattern into August and sold off, slicing through the IPO opening print. Sellers maintained firm control into the November low at $25.58, ahead of a recovery wave that stalled in February 2020 after posting a six-month high in the low $40s.
The stock plunged into March, hitting an all-time low at $13.71 before bouncing into the second quarter. The recovery wave stalled about two points below the first quarter peak in June, giving way to a trading range that established new support in the upper $20s. Uber shares broke out of the range on heavy volume after the California vote and reached the 2019 high a few sessions later. The next day’s breakout signaled an uptrend that has just been confirmed through even higher highs.
The on-balance volume (OBV) accumulation-distribution indicator has led price throughout 2020, lifting to a new high in February. It entered a steady but shallow uptrend in May and surged after the post-election gap. Accumulation has shown signs of weakness since late November despite higher prices, potentially driven by profit-taking ahead of expected volatility when the elusive offering finally gets underway.
The Bottom Line
Uber stock broke out after California allowed drivers to continue as independent contractors and has added to gains after the completion of the Postmates acquisition. However, a secondary offering may be needed to pay for the transaction, increasing the potential for volatility and more two-sided price action.
*By Alan Farley, Investopia*