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On Thursday, Bernstein analysts maintained a positive outlook on Instacart shares (NASDAQ:CART), reiterating an Outperform rating and a $55.00 price target. According to InvestingPro data, the stock has experienced an 18.5% decline over the past week, trading at $42.80, despite maintaining impressive gross profit margins of 75.2% and a strong balance sheet with more cash than debt. The analysts acknowledged the challenges faced by the company, including tough year-over-year comparisons due to weather and an extra day in the previous year’s first quarter, as well as typically lower margins in the first quarter. Despite these factors, the analysts believe the recent pullback in Instacart’s stock price presents a valuable opportunity for investors. The company’s financial health score is rated as "GREAT" by InvestingPro, with particularly strong scores in cash flow and growth metrics.
Instacart’s guidance for the first quarter was slightly better than Bernstein analysts had anticipated. The company is actively investing in its growth, focusing on expanding into restaurant delivery and catering to smaller grocery orders, which are expected to complement larger, weekly shopping needs. This strategic move has sparked discussions among investors regarding the sustainability and profitability of these new avenues.
The analysts observed that while the margins for these new segments are moderating, the core grocery delivery service continues to exhibit stable growth, ranging from mid-single digits to high-single digits. Supporting this view, InvestingPro data shows revenue growth of 11% in the last twelve months, with analysts expecting continued growth and improved profitability this year. They also noted that the expansion into new areas is expected to be beneficial overall, with potential for further improvement in unit economics.
Bernstein’s analysis suggests that the first quarter EBITDA (earnings before interest, taxes, depreciation, and amortization) guidance provided by Instacart aligns with their expectations, even considering the shift in product mix and the ongoing investments being made by the company.
The analysts concluded by highlighting the value they see in Instacart’s current stock multiple, suggesting confidence in the company’s market position and growth prospects despite the near-term headwinds and investment phase. With a PEG ratio of 0.24 and strong fundamentals, InvestingPro analysis suggests the stock is currently undervalued, with 8 additional exclusive ProTips and a comprehensive Pro Research Report available for subscribers seeking deeper insights into Instacart’s investment potential.
In other recent news, Instacart’s fourth-quarter earnings report has drawn mixed reactions from analysts, highlighting both strengths and areas of concern. The company reported a revenue increase of 10% to $883 million, slightly missing the forecast consensus of $889 million, while its adjusted EBITDA reached $252 million, exceeding expectations. Analysts from Stifel raised their price target to $57, maintaining a Buy rating, and noted robust order growth as a key driver of Gross Transaction (JO:TCPJ) Value (GTV) strength. Similarly, Macquarie increased their target to $55, citing Instacart’s strong bargaining power with grocers and its strategic initiatives to foster growth.
BMO Capital Markets also adjusted its price target slightly to $49, attributing the change to an acceleration in order velocity and strategic moves like lowering the no delivery fee threshold. Despite these positive notes, Benchmark maintained a Hold rating, expressing concerns over Instacart’s promotional efforts and competitive pressures from rivals such as DoorDash (NASDAQ:DASH) and Uber (NYSE:UBER) Eats. Cantor Fitzgerald reiterated an Overweight rating with a $55 target, emphasizing Instacart’s operational improvements and attractive risk/reward profile.
The advertising segment remains a focal point, with mixed views on its performance amid macroeconomic challenges. While some analysts anticipate faster advertising revenue growth, others note limited expansion potential due to high penetration with major brand partners. These developments reflect a complex landscape for Instacart as it navigates growth strategies and competitive dynamics in the digital grocery delivery market.
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