Forte On Groupon: Turn The Volume Up To $11

In a report published Friday, Brean Capital analyst Tom Forte maintained a Buy rating and price target of $11 on Groupon, Inc. GRPN. The analyst attributes the 42 percent decline in the share price since late February to a “buyer’s strike.”

3 Reasons to Buy Groupon

Analyst Forte believes, however, that there are factors that make the stock an attractive buying option. The first reason, according to the Brean Capital report is “the potential for sustained North-American daily deal growth despite a tough comparison in 2H15.”

In addition, Groupon might be able to diversify its product portfolio through its restaurant delivery initiatives. The third reason is, of course, the stock valuation. Some volatility can be expected in the shares following the company’s 2Q15 earnings report, scheduled for next Friday.

2Q15 Results Preview

Analyst Forte expects Groupon to report its 2Q15 revenues at the midpoint of the guidance range, slightly below the consensus forecast and representing a 2.3 percent decline, year on year. The revenue was affected by the exclusion of Ticket Monster, following the divestiture of Groupon’s majority stake in the business, as well as by the negative impact of the strong US dollar.

The 2Q15 adjusted EBITDA is expected to come in at the lower end of the company’s guidance range, meaningfully below consensus. However, “the potentially damaging effects of the strong US dollar are already reflected in Groupon’s current share price,” analyst Forte added.

Others Disagree

In a report published July 13, Morgan Stanley analyst Dean J Prissman maintained an Equal-weight rating on Groupon, while lowering the price target to $5.30, based on more conservative long-term expectations from the company.

“While we acknowledge that Groupon's negative working capital cycle affords the company financial flexibility; we don't see it as a material lever which can be used to enhance shareholder value,” analyst Prissman had stated.

According to the Morgan Stanley report, couponing is unlikely to prove to be viable or sustainable growth strategy, with the local daily deals market having reached maturity fairly quickly.

Hold Sentiment Echoed Much Earlier

In a report published June 22, Topeka Capital analyst Blake T. Harper had initiated coverage of Groupon with a Hold rating and price target of $6. Analyst Harper believed that the company had “failed to drive sustained upside to revenues and earnings that would cause investors to revalue the stock higher.”

The analyst believed that while the stock represented good value, it needed to overcome Groupon’s “inconsistent execution and tepid growth.”