Uber stock could jump 28% as the economy reopens but regulatory overhang is a risk, Wedbush says

• Uber stock could jump 28% amid the economic reopening, Wedbush says.
• Analyst Dan Ives reiterated his "outperform" rating for Uber, but lowered his price target to $66.
• Ives said "regulatory overhang" is a concern after the Biden administration's move to block a Trump-era rule affecting gig workers.

Uber stock could jump 28% amid rising demand as the economy continues to reopen, but "regulatory overhang" is a growing risk, according to Wedbush.

In a note to clients on Thursday, Wedbush's managing director of equity research, Dan Ives, said that Uber is "showing signs of a major recovery."

The analyst reiterated his "outperform" rating but lowered his price target to $66 per share from $76, citing "regulatory overhang."

The $66 price target represents a potential 28% jump in share prices from Wednesday's closing price of $51.18 per share.

Ives said that Uber's gross bookings and EBITDA were standouts in the company's first-quarter earnings report on Wednesday.

Gross bookings jumped 24% to a record high of $19.5 billion in the quarter compared to an analyst consensus estimate for $18.07 billion.

The overall jump in bookings came despite a 38% year-over-year drop in mobility bookings due to the pandemic.

Uber was able to boost its top-line performance with its delivery business which saw a 166% increase in bookings.

While restaurant delivery revenue is likely to fall as the economy continues to reopen, Ives said that the increase in mobility and non-restaurant delivery revenue will more than makeup for the loss.

Adjusted EBITDA losses also improved by $95 million in the first quarter, adding credence to Uber's claims that it will hit profitability in the second half of the year.

Despite a strong quarter from Uber, the stock is under pressure after the Biden administration announced it will end a Trump-era independent contractor rule affecting gig workers.

"By withdrawing the independent contractor rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect," Labor Secretary Marty Walsh said in a statement, per Reuters.

"Too often, workers lose important wage and related protections when employers misclassify them as independent contractors," Walsh added.

In his note to clients, Wedbush's Ives called the regulatory environment "the elephant in the room" and a potentially "troubling scenario/overhang for the bulls."

He noted that Uber took a $600 million charge to its expenses in the March quarter based on the recent UK reclassification of its drivers.

The analyst said this highlights the "complex and costly nature of these labor changes."

"In a nutshell, we remain bullish on Uber and believe this is a core recovery name to own for the next year as ridesharing rebounds and the delivery business finds a normalized growth rate. That said, we believe the regulatory overhang is now a $10+ overhang on the stock as the Street better grasps the labor changes coming out of the Biden White House," Ives concluded.