Uber is worth a trade, this investor says

The stock may have had its ups and downs over the past three years as a public company but investors thinking about Uber Technologies (Uber Technologies Stock Quote, Charts, News, Analysts, Financials NYSE:UBER) might buy it at current levels for a short-term trade. That’s the scoop from Andrew Pyle of Wood Gundy, who thinks there’s quite a bit of upside from here.

Ride hailing and delivery service Uber has seen its share price slide over the past 12 months, going from around $60 in April of last year to now in the low-$30s. There’s been a general market rotation away from growth stocks over the past half year, which would go some of the way to explaining UBER’s current predicament, since operationally the company appears to be growing its platform at a nice clip.

And while there might be a ceiling to the stock at some point, Pyle likes the look of Uber at the moment.

“Uber I think at these levels around $30 a share is very, very attractive,” said Pyle, investment advisor at CIBC Woody Gundy, who spoke on BNN Bloomberg on Tuesday. 

“You’ll notice the analyst community has started to come out a lot more positive on the name, which is interesting because we would think of Uber as really being one of those reopening plays as we come out of the pandemic,” he said. “[With] more people traveling  and more people comfortable to get into vehicles, for example, for ride sharing.”

Pyle said aside from the pandemic, another factor at play for Uber would be fuel costs, which as everyone knows, have been rising sharply.

“We’re dealing with energy prices that have gone through the ceiling, which normally would tell us to stay away from this segment. That being said, the fact that Uber has put in place its fuel surcharge as a way to insulate drivers and I do think this gives us a bit of support for Uber,” he said.

Last month, Uber announced a temporary fuel surcharge where customers will pay an added $0.45 or $0.55 for each ride or $0.35 or $0.45 for each Uber Eats order, depending on location. Uber said the move is to offset higher gas prices for its workers who will get all of the surcharge, according to the company.

“We know that prices have been going up across the economy, so we’ve done our best to help drivers and couriers without placing too much additional burden on consumers. Over the coming weeks we plan to listen closely to feedback from consumers, couriers and drivers. We’ll also continue to track gas price movements to determine if we need to make additional changes,” Uber said in a March 11 press release.

The quintessential disruption company, Uber’s ride hailing service is now paired with delivery, with the company also moving into booking other types of travel too, including trains, buses, planes and car rentals. Uber has been perennially dogged by profitability concerns, although more lately it has shown itself to be in the black on an adjusted basis.

For its latest quarter, the company’s Q4, delivered in February, Uber hit revenue of $5.78 billion, which beat analysts’ estimates at an average of $5.34 billion and represented a 83 per cent growth rate over the fourth quarter of 2020. The Q4 2021 posted net income of $892 million and adjusted EBITDA of $86 million compared to a net loss of $968 million and adjusted EBITDA loss of $454 million a year earlier. (All figures in US dollars.)

Overall, Uber’s 2021 was better than its 2020, with Trips increasing by 27 per cent to 6.368 trips and revenue up 57 per cent to $17.455 billion. Adjusted EBITDA was still a loss for the year, however, at negative $774 million.

“Our results demonstrate just how far we’ve come since the beginning of the pandemic,” said Dara Khosrowshahi, CEO, in the fourth quarter press release. “In Q4, more consumers were active on our platform than ever before, Delivery reached Adjusted EBITDA profitability, and Mobility Gross Bookings approached pre-pandemic levels. While the Omicron variant began to impact our business in late December, Mobility is already starting to bounce back, with Gross Bookings up 25 per cent month-on-month in the most recent week.”

For the first quarter, 2022, Uber was anticipating positive adjusted EBITDA between $100 and $130 million.

For Pyle, there’s money to be made on Uber over the next while.

“We don’t think we’ll see Uber get up to around the $60 or $65 level, which some analysts are targeting, but we do think Uber probably can make up to about $50 a share, so it represents a fairly decent, short term aim for investors looking to get in on Uber, I would say,” he said. “I think the valuations are quite attractive right now.”