By Eric J. Savitz
Uber Technologies, the popular ride-hailing and delivery company, may no longer be an attractive investment option, according to Gordon Haskett analyst Robert Mollins. In a recent research note, Mollins downgraded his rating on Uber to Hold from Buy and set a price target of $66, which is slightly above the current levels.
Why the Downgrade?
Mollins highlights three specific concerns that led to his downgrade on Uber:
1. Limited Catalysts for Growth
Mollins believes that the positive impact of Uber’s business catalysts, such as the expansion of the Uber One loyalty program to more countries, have already been fully appreciated by investors. This leaves little room for further multiple expansion, which is why he downgraded the shares.
2. Overestimation of Margins
According to Mollins, market estimates for Uber’s margins are now much higher than the company’s own long-term targets. While Uber has consistently operated above its long-term incremental Ebitda margin of 7% for the past seven quarters, Mollins is skeptical about the Street estimates moving forward. He warns that even if Uber raises its target margin by a point or two during the upcoming investor day, investors may not respond enthusiastically as current estimates already sit in the 10% range.
3. Risks of Higher Wages
There is also a potential risk for Uber as more cities may follow New York and Seattle in implementing mandated higher wages for app-based delivery workers. This could increase operating costs for the company and put pressure on its profitability.
Final Thoughts
While Mollins acknowledges that Uber deserves a premium compared to its peers, he believes that the road ahead for the company may be challenging. Despite solid growth over the last year, investors should exercise caution and consider taking profits in Uber Technologies shares.