On Tuesday, Delivery Hero SE (DHER:GR) (OTC: DLVHF) stock experienced a shift in stock rating as Citi adjusted its stance on the company. The firm downgraded the stock from Buy to Neutral, while simultaneously raising the price target to EUR42.00 from the previous EUR32.00. The adjustment follows Delivery Hero's significant year-to-date (ytd) price increase of 53%.
Citi's revised outlook is based on Delivery Hero's recent performance and future expectations. The firm slightly upgraded its estimates for the food delivery company, citing better than anticipated app trends in the quarter.
For the fiscal years 2024 and 2025, Citi now expects a 1% and 2% increase in revenue, respectively, and a 2% rise in adjusted EBITDA for both years. The forecast for earnings per share (EPS) has also been adjusted, with a 19% increase for FY24e and a 3% for FY25e, driven by near-zero estimates previously.
For the third quarter of 2024, Citi anticipates an 8% growth in gross merchandise volume (GMV), which aligns with the consensus view. The firm also expects that all regions, with the exception of Asia, will exhibit growth.
In terms of financial forecasts, Citi projects an adjusted EBITDA of €759 million for FY24e, which is 2% above the consensus and within the guidance range of €725-775 million provided by Delivery Hero.
Furthermore, Citi estimates a free cash flow to the firm (FCFF) of €87 million for FY24e, in line with Delivery Hero's guidance for positive free cash flow. The increase in the price target to EUR42.00 is justified by these estimate changes and a reduction in Delivery Hero's weighted average cost of capital (WACC) to 12% from 13.5%.
This reduction reflects a significant decrease in the yield to maturity (YTM) on the company's convertible securities and a lowered beta, indicating reduced investment risk.
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