Bernstein believes the bull case for Uber Technologies Inc
What Happened: Bernstein analyst Nikhil Devnani maintained Uber with an Outperform rating, reiterated it as a top pick and raised the price target from $45 to $50 as the analyst saw a free cash flow acceleration in the years ahead.
"We believe UBER is in the midst of an inflection point in earnings and FCF, making it our top pick in the space. As a higher cost of capital has put greater constraints on smaller competitors, UBER has seen its market share improve alongside its economics," Devnani said in a new note to clients.
Uber was grabbing share in its ride-hailing and delivery businesses as the benefits of scale were joining forces with improving margins, the Bernstein analyst said.
Devnani acknowledged Uber's hyper-growth phase was over, but noted the company continued to push back against the bear case that ridesharing is hitting maturity. Uber was still seeing solid top-line momentum as it continued to introduce new ride types, he added.
The Bernstein analyst believed Uber could be "one of the most compelling FCF growth stories in U.S. Internet" over the next two to three years.
Devnani noted Uber offered a multi-year incremental margin story and as the company began generating excess cash, buybacks could further support share growth.
Another catalyst for Uber is potential inclusion in the S&P index, which could happen by the second half of next year, the analyst said. Stocks tend to outperform in the six to 12 months leading up to S&P inclusion, he noted.
Uber offered investors growth at a reasonable price given that it sits near the top of its peer group and most of the big tech on free cash flow growth projections over the next few years, Devnani said.
If Uber continued to grow free cash flow and beat profitability expectations, it's reasonable to think shares could move beyond the firm's $50 target and climb as high as $55 or $60 per share, the Berstein analyst said.
