Why Groupon Needs to 'Accelerate' Its Buybacks

Tom Forte at Brean Capital said that the Groupon Inc (NASDAQ: GRPN) earnings report offered "a mixed bag, with a little of everything." However, when looking at the company as a whole, Forte found value – revising the 12-month price target to $8 from $11, but reiterating the company as a Buy.

The lower price target corresponds to lower estimates from management, which in the near-term was "reasonable." However, Forte said that management's long-term estimates, particularly as it relates to EBITDA, was "disappointing." The highlights from the call were the company's reiteration of full-year sales guidance and expectation of double-digit North American billings growth in Q3. The company's

Brean's conclusion: it's "time to accelerate repurchase activity." At present, Groupon has $461 million remaining on authorized repurchases, after buying back $91.5 million on the quarter. With shares down nearly 47 percent from its February high, it's time for the company to start supporting the stock. Forte argued that at current levels, the company needs to "prevent the shares from unraveling further."

In Brean's model, Forte decreased the adjusted EBITDA forecast, but maintained the long-term adjusted EBITDA margin of 17 percent. That compares to a margin of just 7.9 percent in 2014.

Year to date, Groupon has declined 46 percent. From a historical perspective, the company trades above its all-time low of $2.76, though well below its IPO highs, which were above $26. An $8 price target would be 81 percent above Friday's closing price at $4.43.