Brean Capital On Groupon: 'Time To Buy'

Investors have long been negative on Groupon Inc GRPN almost immediately after its IPO. The stock quickly peaked before falling sharply amid recurring missteps. But analysts at Brean Capital say now is the time to buy.

In a note on Friday, Brean analyst Tom Forte said the catalyst for Groupon could be the sale of its South Korean unit, Ticket Monster. Through the lens of unfavorable FX exchange rates, Brean analysts see a “wonderful buying opportunity” that represents an upside of more than 47 percent to the $11 price target.

Groupon’s renewed daily deals strength is sustainable – as evidence by the growth in North American local billings at 13.7 percent, up from 10 percent last quarter. Margins improved 200 basis points at the same time, they noted.

Related Link: Groupon Q4 Earnings: A Chronological Recap

According to the note, Groupon is expected to achieve long-term adjusted EBITDA margin of 16 percent – up from 11.1 percent in 2013 – leading to a valuation that is more in line with its peers.

When it comes to risks, Brean identifies three:

1. The Ticket Monster divestiture "may not play out as hoped."

2.Growth in North American deals could be unsustainable.

3. Investments in goods' margins "may take a long time."

Groupon is lower by 1.6 percent in early premarket trading.