Street Fight: Analysts split on Instacart amid rising competitive pressures

Shares of Instacart (CART) are in the spotlight on Friday as Piper Sandler downgraded the name to Neutral, while Fox Advisors upgraded the stock to Outperform. Piper cites the company’s rising competitive pressures from major players, concerns that are viewed as “overblown” by Fox Advisors. On Monday, BTIG had also cut Instacart’s rating to Neutral amid negative competitive developments.

GROCERY NEWS: Amazon announced this week the launch of Amazon Grocery, a new private label brand featuring more than 1,000 food items. The selection includes everything from milk and olive oil to fresh produce, meat and seafood, with most products priced under $5.

Uber Eats also announced that it is making it easier than ever for customers to get groceries from the local stores they love. Uber Eats announced new partnerships with Citarella, Rouses Markets, Town and Country, Wild Fork and Rosauers Supermarkets, bringing even more regional favorites onto the platform.

Meanwhile, DoorDash and Kroger (KR) announced an expansion of their relationship to bring Kroger’s full grocery assortment, including fresh food, exclusive Our Brands products, and affordable everyday essentials to customers. Through the expanded relationship, Kroger will make shopping easier for customers, leverage the company’s growing store network in new ways, and attract new households and incremental shopping occasions.

MOVING TO SIDELINES: Piper Sandler downgraded Instacart to Neutral from Overweight with a price target of $41, down from $62. The firm cites the company’s rising competitive pressures from Amazon (AMZN), Walmart (WMT), Uber (UBER) and DoorDash (DASH) for the downgrade. Industry dynamics are pitting Instacart against “scaled competitors that may be cheaper and fast-growing peers forging new partnerships,” the firm tells investors in a research note. Piper believes Walmart’s and Amazon’s products have the potential to be more reasonably priced than Instacart.

The firm notes that the shares are down 25% from the recent peak. While Piper does not foresee Instacart missing Q3 numbers, it contends that the path ahead “looks treacherous.” Amazon looks highly price competitive, while Uber and DoorDash will almost certainly forge other grocer partnerships, Piper adds. Moving to Neutral makes sense, the firm argues, until there’s better visibility.  

NEGATIVE COMPETITIVE DEVELOPMENTS: Earlier this week, BTIG downgraded Instacart to Neutral from Buy with no price target, citing “ongoing negative competitive developments.” The week started with “yet another competitive announcement” with an ongoing push into the grocery delivery category by Amazon, Doordash and Uber, said the firm, which noted that Instacart partners representing an estimated 25%-plus of Gross Order Volume have signed deals with Amazon, Doordash or Uber in the last two weeks.

OVERBLOWN CONCERNS: Fox Advisors upgraded Instacart to Outperform from Equal-Weight as shares “oversold on overblown competitive concerns.” The firm thinks the 24% decline in the stock since August 11, including 16% over the past month, is due to a number of investor concerns that it sees proving overblown in coming quarters, including a rising focus to online grocery delivery by larger companies, including both well-established online platforms and brick-and-mortar retailers with advancing digital and fulfillment offerings; available consumer spending for the cost of grocery delivery convenience in the face of macro uncertainty; and the importance of now expiring exclusivity agreements with certain large grocers to Instacart’s growth. Fox Advisors thinks these issues prove less important.

PRICE ACTION: In Friday morning trading, shares of Instacart are fractionally down at $39.07.

“Street Fight” is The Fly’s recurring series of exclusive stories that highlight a stock or sector that is in focus amid divergent views from Wall Street analysts.