Groupon shares have been upgraded to Hold from Sell by Evercore ISI analyst Ken Sena. The analyst has assigned the company a price target of $8 per share, up from $6.50 previously.
Positive signs before earnings release
Sena said in his note that the rating has been assigned following the improvement that the company is exhibiting ahead of its Feb. 12 earnings report. To be precise, minutes per user has come in positive for the third consecutive quarter, reflecting a combination of product enhancement and seller initiatives. “Factoring this engagement improvement, coupled with expected proceeds from a partial TMON sale, lead us to step to the sidelines on shares, where our target price moves to $8 (from $6.50).”
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In a separate report, Credit Suisse Group revised its price target on Groupon from $6.50 to $8, reiterating its Neutral rating on the stock. The research firm recently released the report on internet stocks, offering in-depth analysis of the overall industry and specific company attributes.
Groupon is expected to sell more services this year, driven by increased mobile offerings. Further, the analysts expect the company to earn higher margins for its Goods business by optimizing logistics. In November last year, the online giant revealed its growth targets for future years.
Analysts bullish on Groupon
For the year 2015, Credit Suisse forecasts revenue growth of 15%, which is in line with the company’s own estimate, but for the next few years the expectation is lower. Additionally, Groupon is expecting an increase of 20% in revenue during 2017, while Credit Suisse expects growth to come down every year for the next six years, dropping to 9% by 2020.
For the current quarter, Credit Suisse suggested higher revenue and earnings estimates compared to the company’s guidance. For the fourth quarter of fiscal 2014, Groupon has given a revenue guidance of between $875 million and $925 million, compared to $935 million from Credit Suisse.
Credit Suisse’s rating on the stock is based on discounted cash flows, a common valuation method used by the company for internet stocks. The surge in the firm’s target price is the outcome of higher cash flows estimated for the next twelve months. The research firm stated that it could change its price objective further based on the company’s ability to derive demand to match its already arranged huge supplier base.