Uber Gets Boost as Wedbush Sees California Prop. 22 Benefits

Uber's growth prospects are underestimated by Wall Street, Wedbush analyst Dan Ives wrote in a report.
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Uber Technologies  (UBER) - Get Report, and its Uber Eats division, will be a "reopening play" for investors as the economy strengthens in 2021, according to a Wedbush note. 

The food-delivery division of the San Francisco ride-sharing company is expected to benefit from the passage of California's Prop. 22, which classifies app-based drivers as independent contractors instead of employees in the state. 

"With the Postmates acquisition closed, cost and revenue synergies to follow in the coming quarters, and the Cornershop acquisition developing the grocery delivery business (now at a $1 billion run rate and expected to grow to multiples of that next year), we expect to see robust strength on this front looking ahead into 2021, with growth still underestimated by the Street," Wedbush analyst Dan Ives said. 

The firm has an outperform rating and $60 price target on Uber shares. Uber at last check rose 5.2% to $53.77.

Prop. 22 passed in November, but its impact is just being felt in the state after Albertson's, the second-largest grocery chain in the country, laid off all its delivery drivers. The grocer will instead use ride-sharing services to deliver its groceries. 

Being labeled an employee in California guarantees standard benefits including health care. Independent contractors do not get those benefits, but do get the flexibility to decide when, where and how much to work. 

While rideshare contractors don't get standard benefits, they do get certain other benefits including:

  • an earnings minimum of 120% of local minimum wage per hour of driving, not waiting
  • a health insurance stipend for drivers who work more than 15 hours per week.
  • hazard pay covering medical costs as well as some lost income
  • and a rest policy

To pay for those new benefits, Uber decided to tack on up to $1.50 for rides and up to $2 on meal deliveries.

"The delivery business continues to be a major bright spot for Uber, highlighting the benefit of the diversified model," Wedbush analysts said.