Chronicle Journal: Finance

3 Food Delivery Stocks to Buy Amid Rising COVID Cases: Walmart, Uber, and Papa Johns

The COVID-19 pandemic has helped the food delivery industry see a significant increase in its revenues. With the continued increase in coronavirus cases, potentially exacerbated by a just-discovered now strain of the virus, we think food delivery stocks like Walmart (WMT), Uber (UBER) and Papa John's International (PZZA) should keep soaring. Let us look closer.

The pandemic has accelerated the demand for meals delivered at home, significantly benefiting food delivery companies. According to a Statista report, revenue in the Online Food Delivery segment is projected to reach $26.53 billion by the end of this year.

With people avoiding eating out at commercial establishments, restaurants have also been depending on food delivery platforms to reach their customers. While COVID-19 vaccine distribution has begun, mass production and effective deployment is still some way off. And amid the rising daily coronavirus cases along with dealing with a newly discovered new strain of the virus,  it is less likely that dine-in restaurants will return to normal business operations any time soon.

While industry trends are changing, online grocery delivery platforms are booming together with other food delivery companies. Walmart Inc. (WMT), Uber Technologies, Inc. (UBER), and Papa John's International, Inc. (PZZA) have all been able to capitalize on the trend by integrating contactless delivery and opening new drive-through branches across the country. These three stocks, we believe, still have upside.

Walmart Inc. (WMT)

WMT is an American multinational retail behemoth that operates a chain of hypermarkets, discount department stores, and grocery stores. The company offers an assortment of merchandise and services at competitive prices through three segments: Walmart U.S., Walmart International and Sam's Club.

In November, WMT launched Walmart Pet Care, as a continued expansion of its full suite of pet offerings. This was an attempt to bring in more pet owners by providing easy, simple, and affordable care services.

Earlier this month, to make the Walmart+ retailer’s membership program even more attractive, WMT removed the $35 shipping minimum for orders. This will help WMT acquire many potential customers while bolstering its digital platform.

WMT revenues increased 5.2% year-over-year to $134.71 billion in the fiscal third quarter ended October 31, 2020. Operating profit increased 22.5% from the year-ago value to $5.78 billion, while Non-GAAP EPS rose 15.5% from the same period last year to $1.34.

The consensus EPS estimate of $1.49 for the current quarter ending January 31, 2021 represents an 8% rise year-over-year. The company has an impressive earnings surprise history as well; it beat the Street EPS estimates in three out of the trailing four quarters. The consensus revenue estimate of $147.86 billion for the current quarter represents a 4.4% rise from the year-ago value. WMT has gained 21.8% over the past year.

How does WMT stack up for the POWR Ratings?

A for Trade Grade

A Buy & Hold Grade

B for Peer Grade

B for Industry Rank

A for Overall POWR Rating.

It is currently ranked #1 of 18 stocks in the Grocery/Big Box Retailers Industry.

Uber Technologies, Inc. (UBER)

UBER operates as a technology platform for the mobility of people and things. The firm offers people transportation, restaurant food delivery, and connects freight carriers, and shipper services. The company operates through five segments: Rides, Eats, Freight, Other Bets, and Advanced Technologies Group (ATG), and Other Technology Programs.

Earlier this month, UBER completed its acquisition of Postmates Inc., a food delivery platform, in an all-stock transaction. Both the platforms will continue to run separately, supported by a combined merchant and delivery network. This combination of platforms will provide more choice and convenience for consumers, new demand and tailored technology offerings for restaurants, and increased income opportunities for delivery people.

To further expand its business operations, this month UBER entered a strategic partnership with Joby Aviation, a transportation company, wherein Joby Aviation will acquire Uber Elevate. This will allow the companies to integrate their respective services into each other's apps, enabling integration between ground and air travel for future customers.

The delivery segment of UBER was the primary growth driver of its financials. Its delivery segment reported gross bookings of 8.6 billion in the third quarter ended September 30, 2020, up 133.6% year-over-year. The Delivery segment EBITDA increased 42.1% from the year ago value over this period.

The consensus revenue estimate of $17.8 billion for the next year represents a 42.3% rise year-over-year. The consensus EPS estimate indicates a 15.6% rise year-over-year for the current quarter ending December 31, 2020. UBER has gained 68% over the past year.

UBER is rated a “Buy” in our POWR Ratings system. It has an “A” for Trade Grade and “B” for Buy & Hold Grade and Peer Grade.

Papa John's International, Inc. (PZZA)

PZZA is a pizza restaurant franchise operating in the following segments - Domestic Company-Owned Restaurants, North America Commissaries, North America Franchising, and International Operations. It operates and franchises pizza delivery and carryout restaurants under its trademark internationally.

PZZA’s revenues have increased 17.1% year-over-year to $472.94 million in the third quarter ended September 30, 2020. Operating profit increased 398.3% from the year-ago value to $24.55 million, while its Non-GAAP EPS increased substantially from the negative year-ago value to $0.35 over this period.

The consensus EPS estimate of $0.46 for the current quarter ending December 31, 2020 indicates a 24.3% rise year-over-year. The company has an impressive earnings surprise history as well; it beat the Street EPS estimates in three of trailing four quarters. The consensus revenue estimate of $465.14 million for the current quarter represents an 11.4% rise from the year-ago value. The stock has gained 44.6% over the past year.

PZZA is rated a “Buy” in our POWR Ratings system. It has an “A” for Trade Grade, “B” for Buy & Hold Grade, Peer Grade, and Industry Rank. In the 49-stock Restaurant Industry, it is ranked #19.

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WMT shares fell $0.02 (-0.01%) in after-hours trading Monday. Year-to-date, WMT has gained 24.88%, versus a 15.93% rise in the benchmark S&P 500 index during the same period.



About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.

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