DoorDash will be "reliably delivering meals, drinks and EBITDA beats" in coming quarters, Jefferies analysts said Monday. DASH stock rallied after Jefferies also named DoorDash a "top pick" and upped its rating on the food delivery company to a buy from hold.
Jefferies estimates that San Francisco-based DoorDash's earnings before interest, taxes, depreciation and amortization — or EBITDA — will double in the next two years to $2.5 billion. The analysts raised their 12-month price target for DASH stock from 90 to 130, implying 38% upside from DoorDash's closing price Friday.
"DASH has a long runway for margin expansion, with EBITDA growing (about) 2.5 times faster than GOV (gross order value) over the next five years, driven by advertising growth and reduced losses at international and new verticals," wrote Jefferies analysts led by John Colantuoni in a client note Monday.
On the stock market today, DASH stock gained 3.9% to close 98.52.
DASH Stock: International Markets, Ad Push
A positive for the stock, in Jefferies' view, is the potential for DoorDash to improve earnings from international operations and new lines of business, such as grocery delivery. So far, investors don't appear sold on the company's expansion efforts.
"Our analysis shows core U.S. restaurant delivery business alone is worth more than DASH's total valuation, implying the market is ascribing zero value to international/new verticals," Colantuoni wrote.
Applying an earnings multiple of 14-times adjusted earnings for the core U.S. restaurant delivery business would give DoorDash a valuation 15% higher than where it is currently trading, the report said.
"We assume international restaurant delivery and new verticals see significant improvement to EBITDA over time, driving upside to our prior estimates," Colantuoni wrote.
The analysts also see potential for DoorDash's advertising business. This view is based in part on the success of rival Instacart at selling ads within its grocery-shopping app.
Jefferies estimates advertising will contribute 35% of EBITDA growth for DoorDash over the next three years. That's based on an estimate that the company will be able to sell advertisements equal to 1.3% of its gross order value, or total orders, by 2026.
DASH Stock: 106% Gain In 2023
DoorDash stock bounced back from a down year in 2022 to gain 106% in 2023. However, shares are still well off a November 2021 peak near 245. DoorDash completed an initial public offering late in 2020.
The food and grocery delivery company has tallied $6.3 billion in sales through the first nine months of the year, up 33% from the same period in 2022.
Overall, Wall Street analysts are still largely mixed on DoorDash. Of the 37 analysts following the stock, 17 give a buy or equivalent rating, according to FactSet. Meanwhile, 19 have a neutral or equivalent rating and one analyst has a sell opinion.
The gains Monday have DASH stock trading just below its 21-day moving average, according to IBD MarketSmith. DASH stock slipped below that line in trading last week.
Further, DASH stock is on the IBD 50 top growth-stock list. DoorDash shares are also on IBD's Tech Leaders list.
