Brean: Why Investors Should Buy Yelp into Earnings

Brean Capital hiked its Yelp Inc YELP price target by more than 15 percent – from $50 to $58 – and recommended that investors buy shares heading into the quarterly report on April 29. Brean analysts based the recommendation on the "potential for upside to our full-year estimates from [Yelp's] marketing, mobile, sales force, and Yelp Platform efforts."

That upside stems from Yelp's investments in its people, technology and marketing. On the marketing front, Brean hypothesized that Yelp's $30 million investment in marketing announced after the Q4 earnings call could already be impacting the company's full-year operating results. Mobile will also be key, the analysts said, as mobile growth exceeds desktop growth. Finally, Yelp's sales force is maturing and "approaching productivity," meaning that the company should start to see exponential results from the sales force.

Brean did highlight two risks that it is watching: (1) recent changes Google Inc GOOG made to its search algorithm, and (2) the potential production of a negative documentary on the company.

When it comes to how the stock will react post-earnings, Brean said that there will likely be a large move in either direction. The "average one day move after earnings" is 15 percent, with shares moving at least 10 percent in either direction 75 percent of the time. The stock moves 20 percent in either direction 25 percent of the time.

Yelp is indicated 1.2 percent higher in today's premarket – trading just below $50 per share versus Tuesday's closing price of $49.31. The stock is still well below its 2014 high of $97.25. This year, shares have declined 10 percent, with much of that decline occurring immediately following the Q4 earnings report in February.