Uber's investment in Didi could help unlock 40% upside potential in the US ride hailing giant's stock, Bank of America says

• The IPO of Chinese ride-hailing company Didi could help unlock value for shares of Uber, according to Bank of America.
• Uber owns a 12% stake in Didi, which hit a valuation of about $80 billion on its first day of trading on Wednesday.
• BofA's $71 price target for Uber represents potential upside of 40% from Thursday's close.
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The recent IPO of Chinese ride-hailing giant Didi could help unlock value in shares of Uber, Bank of America said in a note on Friday.

The bank argued that Uber's 2016 investment in Didi is now worth almost $10 billion. Uber owns about 12% of Didi, which touched a valuation of nearly $80 billion in its first day of trading on Wednesday. Uber had most recently pegged the value of its Didi stake at $5.9 billion, meaning there is upside to Uber's assigned asset value that could help boost the stock price.

"Based on 1.9 billion shares outstanding for Uber, we estimate that translates to an incremental ~$2 per share in equity value for Uber," BofA explained.

The bank rates Uber at a "Buy" and has a $71 price target, representing potential upside of 40% from Thursday's close. And there's even further room higher based on a sum-of-the-parts valuation, in which the BofA assigns a $90 per share value for Uber. A move to $90 would represent potential upside of 78%.

Despite BofA's bullish outlook for Uber, the stock has considerably underperformed its peers like Lyft and DoorDash year-to-date. Shares of Uber are down 1% year-to-date, while Lyft and DoorDash are up about 27% and 26%, respectively.

The bank highlighted four overhangs the stock is currently facing, including a large seller of Uber stock in June that may have impacted supply and demand dynamics, Uber's guidance suggesting bigger driver incentives, Uber's international exposure, and a larger-than-expected UK driver settlement amount.

"While it's hard to say if any one of these issues is the core drive for Uber's relative underperformance, we reiterate our Buy rating as we think some of the overhang could clear in 3Q with further reopening and vaccination progress," BofA said.

The bank expects Uber to reach breakeven profitability by the end of the year.

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