The underwriters on Blue Apron Holdings Inc.’s initial public offering struck a bullish tone for the stock Monday.
A wave of banks initiated coverage of the stock, following the typical 25 day post-IPO period that underwriters wait before publishing research, with many assigning the stock a buy rating. Their optimism comes even as Amazon.com Inc. appears to have emerged as a direct competitor in the meal-kit space and as Blue Apron has struggled to keep its stock afloat.
Shares of Blue Apron APRN, +13.91% have fallen 30% month-to-date, while the S&P 500 SPX, -0.10% has gained 2% during that time period. Blue Apron fell below its $10 issue price in its second day of trading and has yet to reach that level again.
Blue Apron shares surged 11% Monday morning after the stock received the positive wave of initiations. Still, all of the analysts set price targets near or below Blue Apron’s issue price.
Many of the underwriters addressed skepticism they seemed sure to face from investors, with some saying Blue Apron’s valuation is now attractive given its lower price, and others discounting the threat from Amazon AMZN, +1.23% or offering counter strategies for Blue Apron.
Here’s what the underwriters said:
— Goldman Sachs analysts initiated the stock at buy, with an $11 price target. While they note that Blue Apron is up against at least 20 competitors in the U.S., backed by $345 million in venture investment, they say the competition is actually a good thing.
“We see this hyper-competition as the primary source of Blue Apron’s rising costs and slowing growth and an eventual key to both improving,” wrote Heath Terry, lead analyst on the report.
In the early stages, this competition creates more volatility for the stock, but they see competition gradually dying down, as the economics and investment levels are not sustainable. They note that this was the case in the on-demand delivery space, with Sprig, Maple and SpoonRocket closing shop.
With less competition, Blue Apron should be able to reaccelerate its growth, helped by new products and upgrades to its logistics. Still, they notably do not discuss Amazon as a competitive threat.
— Stifel analysts say the threat from Amazon is “perhaps overstated” and estimate that Blue Apron will reach more than 2.6 million customers in 2021, with the average customer ordering more than 12 times a year.
Though Amazon is a “formidable competitor,” Scott Devitt, lead analyst on the report, says there is a “narrative fallacy” among analysts and others that any Amazon competitor will fail.
“Dear Market Consensus—Alibaba, Netflix, PayPal are holding on Line 1; Priceline, MercadoLibre. GrubHub, Wayfair, and Zalando, among others, are patiently waiting on Line 2,” Devitt wrote.
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