Bank Of America Previews Groupon's Q2; Reiterates Buy Rating But Trims Price Target

Groupon Inc GRPN is scheduled to announce its second quarter financial results before the market opens on Friday. In a report issued Monday, Bank of America Merrill Lynch analysts Paul Bieber and Justin Post preview the results, which they expect to be in-line with their estimates and slightly ahead of the Street.

Expect In-Line Results

Groupon’s shares are down about 22 percent since the resignation of CFO Jason Childs was announced on June 3. Meanwhile, the NASDAQ surged about 0.75 percent. Given this situation, the experts think the second quarter set-up is favorable since management reiterated its guidance for the quarter and the full year, even after the CFO resigned.

Bieber and Post expect the company to deliver revenues, EBITDA and EPS in-line with their estimates of $741.7 million, $69.2 million and $0.03, respectively, versus the Street at $740.3 million, $66.3 million and $0.02. Given the aforementioned valuation reset and low expectations, they view “the risk/reward as attractive and believe that double digit N. America local billings growth and N. America Goods gross margin trajectory are reasons for optimism.”

Rating & Target

Despite the optimism expressed above, Bank of America lowered its price target on the stock from $9.00 to $8.00as the analysts “migrate from a sum of the parts valuation methodology to an EV/EBITDA multiple and incorporate the PF balance sheet post-Ticket Monster sale into” its EV calculation.

However, the analysts maintain a Buy rating on shares of Groupon, which are up more than 1 percent on Tuesday trading.