Blue Apron's stock surged 13.13 percent Monday after three of its underwriters initiated coverage of the troubled recent IPO with buy ratings.
The stock rose as much as 20.15 percent earlier in the session.
Analysts at Goldman Sachs initiated coverage of the meal-delivery kit company's stock with a buy rating and a price target of $11. RBC Capital Markets and Oppenheimer also initiated their coverage with outperform ratings and price targets of $10 and $11, respectively.
Blue Apron shares closed Friday's session at $6.55 a share, nearly 40 percent below its IPO price of $10. The stock has been pressured as e-commerce giant Amazon has signaled it might enter the meal-kit business.
Blue Apron shares began trading on June 29 and fell below their IPO price on just the second day of trading. The stock fell as low as $6.23 a share last week.
RBC's Mark Mahaney believes the company is well-positioned to stay atop the "the nascent meal-kit delivery market."
He said in a note Monday:
We believe Blue Apron is addressing a large multi-billion dollar market that is nearly all Offline and taking spend away from both traditional grocers and restaurants (take-away and dining-in). Further, based on our work, Blue Apron appears to be the clear leader in the U.S. market and is providing customers with a strong value proposition, particularly as it relates to "convenience" and "variety."
Oppenheimer's Jason Helfstein echoed Mahaney's argument, adding that Blue Apron's "market opportunity is huge." Helfstein said in a Monday note:
As the largest operator in the "subscription meal kit" industry, Blue Apron attempts to use its scale advantage to offer quality, convenience and choice. The potential entrance of traditional grocers, as well as Amazon, will remain an overhang. However, Blue Apron's revenue is only a fraction of our projected $524B [total addressable market], and we believe the stock is undervalued today.
Goldman's Heath Terry said he expects market conditions to improve for Blue Apron:
Blue Apron's rapid growth has drawn at least 20 competitors into the category in the US alone, leveraging a collective $345mn in venture investment in the last 18 months. 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.
Underwriting firms are restricted from issuing research on new IPOs right away so they are not seen as working with the investment banking unit to boost a new offering. The two units are supposed to be separate in a bank.
Morgan Stanley, Canaccord Genuity, Stifel and Barclays — all underwriters as well — have also begun coverage of Blue Apron shares.