Groupon Inc A ‘Buy’ Going Into Earnings: Brean Capital

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Groupon is getting both bullish and bearish views from analysts prior to its fourth quarter earnings report on Thursday

Groupon will post its earnings on Thursday, and Brean Capital analyst Tom Forte suggests traders buy shares before the results are announced. The bullish stance of the research firm is backed by record sales on Black Friday and Cyber Monday, along with talks suggesting Groupon might divest some or all of its Ticket Monster holdings.

Groupon expected to outperform

Brean Capital expects Groupon to outperform consensus estimate for sales, adjusted EBITDA and non-GAAP EPS. Also according to the analysts, $27.55 million in shares will be bought back under the company’s previously announced $300 million in repurchase authorization.

Apart from overall bullish sentiment, Forte mentions that two challenges coming across are margin pressure from a seasonally strong quarter for Groupon’s Goods business and the negative impact of the strong U.S. dollar, considering over 44% of sales came from outside North America in the third quarter.

Increased volatility around earnings

Brean Capital analysts expect increased volatility around the earnings announcement. Forte expects the stock to be volatile on Friday, creating short term opportunities and risk. Analysts note that, since the November 2011 IPO, the average one-day move after earnings is 17.9%, adding that the stock has moved up or down by at least 10% more than 83% of the time and up and down by more than 20% around 58% of the time.

Forte has maintained his Buy rating on the stock with a 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.”

Not all are bullish on Groupon

Separately, RBC Capital analyst Mark Mahaney has assigned a Sector Perform rating to Groupon with a price target of $7, suggesting a potential drop from the current trading price.

Mahaney is expecting revenue of $903 million, adjusted EBITDA of $95 million and 2 cents per share in non-GAAP EPS for the December quarter. The RBC Capital analyst notes that the “Street’s outlook for 33% EBITDA growth in 2015 may also be aggressive, given the company’s ongoing investment needs.”

On Monday, Groupon shares closed up by 0.95% at $7.46.

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