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CNBC announced today that HSBC has upgraded the Lyft (LYFT) and Uber (UBER) shares to "buy" valuations at "maintained" valuations. Before considering the reason for being HSBC, let's see how these two stocks are trading since their IPO this year.
Uber and Lyft Stocks: Regulatory Concerns Overwhelming
The stock market performance of the companies Uber (UBER) and Lyft (LYFT) were marred by several factors. The main concern is their path to profitability. The bill passed by the California Senate is the last problem that preoccupied these companies. This bill, known as Bill 5 (or AB5), will make it difficult for these companies to classify their drivers as independent contractors.
California law and mobile businesses
This new bill will have adverse consequences on business models of companies such as Uber and Lyft. If these companies were forced to classify their drivers as employees rather than as independent contractors, the impact could be devastating. However, Uber tried to downplay the effect of this bill. According to CNN, one of Uber's leading executives said, "Because we will continue to respond to what the vast majority of drivers tell us that they want the most – flexibility – drivers will not automatically be reclassified as employees, even after January of next year. "
Reclassifying drivers as employees could be potentially devastating for Uber and Lyft
If they are to classify drivers as employees, they will have to provide workers with minimum wage, paid time off, sick leave and overtime. According to Quartz, Barclays estimates that "the reclassification of workers could cost Uber and Lyft $ 3,625 more per driver in California". Uber, Lyft and DoorDash pledged $ 90 million to overthrow AB5. According to CNBC, these companies are also ready to offer drivers additional benefits if they do not have to reclassify them as employees.
Losses of Uber and Lyft since their IPO
Regulatory concerns and uncertainty over profitability have led Uber and Lyft to lose significant value since their respective IPOs. The Uber stock has fallen 26% from the price of its IPO of $ 45. Lyft, by contrast, is down about 36% from the price of its IPO of $ 72. The major slowdown in share prices began after the second quarter results. Lyft's second quarter results were better than Uber's. Both companies, however, suffered losses.
Analysts take Uber and Lyft
Many investors may be wondering if LFT and UBER have bottomed out. Many analysts have given their point of view. Deutsche Bank started Lyft's coverage on September 5th with a purchase recommendation and a target price of $ 70. The bank estimates that Lyft's shares are about to collapse. On August 26, Guggenheim also made Lyft go from "neutral" to "buy," its analysts estimating that Lyft could become positive for EBITDA by 2021. Previously, they were expecting to reach this level of balance of here 2023.
As reported by Barron On August 27, Raymond James estimates that Uber shares seem less expensive as his economic conditions improve. Uber is aggressively reducing costs in 2019 to return to profitability. On September 10, Uber announced a new round of layoffs in which approximately 8 percent of its workforce was released.
HSBC modernizes its Lyft and Uber stocks to "buy" them
The most recent analyst ratings for Uber and Lyft come from HSBC today. According to CNBC, HSBC has prompted both stocks to move from "hold" to "hold". Masha Kahn, an analyst at HSBC, said: "We believe that regulatory concerns have their place, as we continue to see many options on improving Uber and Lyft products." However, HSBC has following up on its "buy" recommendations on these actions with target price reductions.
The reduced target prices are probably due to recent massive stock sales. The bank lowered Lyft's target price from $ 67 to $ 62, which implies a rise of about 35%. HSBC also lowered its target price for Uber from $ 49 to $ 44. The new target price is about 32% higher than yesterday's closing price.
HSBC's positive stance on these two stocks is the result of its view that car pooling and food delivery activities can become profitable for both companies, according to CNBC. HSBC also pointed out that "higher regulatory risks and weaker longer-term growth prospects for their Wrinkle business" were headwinds, according to CNBC.
Kahn sees Uber as a free buy option for Uber investors
Market Watch quoted Kahn as saying that Uber's investors essentially benefited from a "free" purchase option in Uber's Uber Eats business. However, she is also concerned about the upcoming Uber expiration period. Kahn thinks it could be an "overhang" for Uber stocks, according to Market Watch. Investors should note that the Lyft lock-up period ended on August 19th. After the sale of his shares, Lyft's hangover is expired. For Uber, however, the hangover remains, as its blocking period ends on November 6th.
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