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'Own Groupon Into Q1 Print'; Stock Stages Rally Following Piper Jaffray Call

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'Own Groupon Into Q1 Print'; Stock Stages Rally Following Piper Jaffray Call
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In a note released on Wednesday, Piper Jaffray recommended owning Groupon Inc (NASDAQ: GRPN)'s shares ahead of the first-quarter earnings release. Investors seem to have latched onto to this trading idea, sending shares up strongly in Thursday's session.

Groupon is scheduled to release its first-quarter results May 5.

5 Reasons To Own Groupon Shares

    1. Concern over near-term traffic "inconsistencies" is overblown, with the firm believing that 2017 guidance/estimates aren't at risk.
    2. With international restructuring completed, management attention is likely to shifting to streamlining U.S. operations, which the firm believes can add 25 percent to EBITDA.
    3. Many exited countries will be reclassified into discontinued ops, more clearly illustrating core market growth.
    4. Groupon's narrowed strategic focus and organizational design will drive more consistent execution, significant FCF and potentially significant share repurchases.
    5. Groupon shares have pulled back to 6.5 times estimated 2018 EV/EBITDA, the 4th percentile of its trading range since 2014.

Piper Jaffray reiterated its Overweight rating and $6.50 price target on the shares of Groupon. The price target represents 72 percent upside from current levels.

GRPN Chart
Source: Y Charts

No Weakness Detected

Analyst Samuel Kemp said he is not seeing any weakness in first-quarter traffic through indicators in Google Trends or App Annie app download data. This in contrast to the company's commentary post its fourth-quarter results, suggesting inconsistencies in first-quarter traffic.

Giving a plausible explanation for the management concerns, the analyst said Groupon's shifting from direct response marketing to a larger mix of offline and delayed-response advertising may be creating some near-term worries. Given his model assuming an organic deceleration in local billings growth after adjusting for the election impact in Q4, the analyst said, "We see little-to-no risk of Groupon lowering full year guidance when it reports Q1."

Domestic Streamlining On The Cards

Piper Jaffray sees shutting up shop in final 15 countries is providing an opportunity to streamline the domestic business. This, according to the analyst could result in annual SG&A savings of up to $60 million.

Concluding, Piper Jaffray said it believes Groupon has shifted from a poor execution and disorganized business to a narrowly focused, improving execution story that will generate nearly $285 million of FCF in 2018.

"We believe that as Groupon finishes its restructuring and maintains its HSD/ LDD gross profit growth trajectory in NA that its multiple will expand from current trough valuation levels at 6.5x 2018E EV/EBITDA," the firm added.

At the time of writing, Groupon shares were up 2.38 percent at $3.87.

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Latest Ratings for GRPN

DateFirmActionFromTo
Apr 2017Morgan StanleyDowngradesUnderweight
Mar 2017BarclaysInitiates Coverage OnUnderweight
Mar 2017CitigroupInitiates Coverage OnNeutral

View More Analyst Ratings for GRPN
View the Latest Analyst Ratings

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