Groupon’s North America Local results are the main focus in next week’s earnings report

Groupon is scheduled to release its next earnings report on Feb. 12 after closing bell. The company has been out of favor with Wall Street for quite some time, and the general sentiment tends to be bearish. However, Sterne Agee analysts are moving against the tide and remain bullish on the daily deals giant because they think its trends are improving. They’re joining with analysts at Evercore ISI, who upgraded Groupon stock just last month.

Groupon Inc Earnings Preview: Local Trends Looking Good

What’s to like about Groupon?

In a report dated Feb. 5, analysts Arvind Bhatia and Brett Strauser said they see potential upside for Groupon in a number of areas. Their fourth quarter checks were positive, and they point out that the company has some easy comparisons in the next few quarters. They also think Groupon’s business model is improving and believe there’s a good chance the company will sell part of its Ticket Monster / Asian operations.

The analysts note several reasons most of Wall Street is bearish on the daily deals company. The big question is whether the positive trends in the company’s Local segment are sustainable, and the Sterne Agee team thinks they are. Because there is still long term uncertainty, the analysts think Groupon is getting support from short term investors who are long on the stock based on the easy comparisons over the next few quarters.

What to expect in Groupon’s earnings report

The analysts say their fourth quarter checks indicate that trends accelerated quarter over quarter, including the North American Local segment. They expect management to reiterate their previously provided guidance for a 15% increase in revenue and 25% increase in adjusted EBITDA for this year. The Sterne Agee team expects to see billings of $2.1 billion, revenue of $900 million and adjusted EBITDA of $90 million for the fourth quarter.

They also see potential for upside to their estimate for growth in North America Local billings, which they currently estimate at 10%. That’s a similar growth rate to what Groupon reported in the previous quarter. Their checks suggest November and December were especially strong for the company and note that management has said they expect double-digit growth in the Local segment to continue for now.

What about foreign exchange issues?

The strengthening of the U.S. dollar compared to foreign currencies has been a major problem for U.S.-based companies, but it might not be as bad for Groupon. The Sterne Agee team points out that the company doesn’t have any formal hedging plan in place but say that to some extent, it is “naturally hedged.” Groupon has expenses in most of the same markets where it recognizes revenue.

The analysts estimate that about 43% of Groupon’s revenue will come from outside the U.S. this year. They say if there’s a 10% negative impact from currencies, it should have an impact of about 4% on Groupon’s top line.

The Sterne Agee continues to rate Groupon as a Buy with a $12 per share price target. As of this writing, shares of Groupon were up 2.01% to $7.45 per share.