Brean Capital: Why We Recommend Buying Groupon’s Shares Into Earnings

Brean Capital analyst Tom Forte weighed in today with a favorable report on Groupon (NASDAQ:GRPN), as the company will be reporting fourth-quarter earnings on Thursday, February 12th at 5 PM ET. The analyst rates the stock a Buy with a $11 price target, which implies an upside of 49% from current levels.

Forte wrote, “When considering Groupon reported record revenues for Black Friday and Cyber Monday (on December 2, 2014) and the potential for an accretive sale for all or part of its South Korean Ticket Monster holdings, our expectations are high for its 4Q14 quarter and the stock’s near-term performance. Two challenges we anticipate are the potential for margin pressure from a seasonally strong quarter for its Groupon Goods business (as we wait for its e-commerce best practices efforts to take hold) and the negative impact of the strong US dollar (when considering 44.7% of sales were outside North America in 3Q14).”

The analyst continued, “When it comes to how the stock will react on Friday, we expect volatility to create a short-term opportunity and risk, as the average one day move after earnings is 17.9% (since its November 2011 IPO) with shares moving up/down more than 10% 83% of the time and up/down more than 20% 58% of the time. We reiterate our Buy rating and 12-month price target of $11, which is based on our discounted cash flow analysis, which assumes the company is able to achieve a long-term adjusted EBITDA margin of 16.0% compared with 11.1% in 2013.”

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