Groupon Bears Are Dwindling As Business Stabilizes

The market is gradually warming to Groupon Inc GRPN, which boasted a positive back half to 2017.

The firm won an upgrade Wednesday from Goldman Sachs, bringing its ratings ratio to nine Holds, three Sells and four Buys.

The Rating

Goldman Sachs analyst Christopher Merwin upgraded Groupon from Sell to Neutral and raised the price target from $4.70 to $5.40.

The Thesis

Groupon shares have risen 4 percent since Goldman Sachs initiated coverage in October. The original Sell rating reflected challenges from stagnant customer frequency and protracted marketing returns, Merwin said. (See the analyst's track record here.)

“However, we now have increasing confidence that Groupon will not only be able to stabilize gross profit growth in the mid-single digits from a recovery in the international business and improving frequency from the rollout of Groupon+, but also show operating leverage as gross profit scales over a rationalized cost base,” Merwin said.

The analyst expects marketing expense growth to outpace gross profit growth in 2018, but with streamlined international operations and an accelerating local business, nonetheless said he considers Groupon’s earnings before interest, taxes, depreciation and amortization to be underestimated by the Street.

Achievable consensus estimates justify confidence in more positive performance by Groupon shares, according to Goldman.