Wedbush Expects Upside Surprise from Groupon (GRPN) in Q3, Raises Rating to 'Outperform'
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(Updated - October 17, 2016 8:04 AM EDT)
Wedbush upgraded Groupon, Inc. (NASDAQ: GRPN) from Neutral to Outperform with a price target of $6.50 (from $4.50). Analyst Aaron Turner said he expects strong Q3 results.
"We expect GRPN to report Q3 results above expectations due to accelerating site traffic growth and improving deal inventory. We see a large valuation discrepancy between GRPN and other internet peers, which we believe will close once investors recalibrate their growth expectations for GRPN following the Q3 report," said Turner.
"Third-party site traffic data indicates growth to GRPN’s North America sites accelerated to 40% YoY in Q3 from 20% in Q2. (fig. 1&2) We believe this is another indication company’s increased marketing efforts have been successful. Assuming a conversion pattern similar to historical levels, we believe this traffic will drive upside to revenue expectations for the quarter," continued the analyst. "Our sample of local deal inventory across 44 US cities that we’ve conducted on a regular basis since we initiated in February shows GRPN has steadily grown local deal inventory by 30% over the past eight months. We believe growing GRPN’s deal inventory is a critical condition for growth as it increases the probability of conversion."
Turner added, "We see a large valuation discrepancy between GRPN and its internet peers. We expect GRPN to achieve robust adjusted EBITDA growth over the next few years as it laps its restructuring efforts, expands gross margins due to mix shift, and enjoys benefits of scale. We believe GRPN’s current valuation is due to uncertainty over progress on its growth initiatives and we expect this concern to dissipate following its Q3 report."
Shares of Groupon, Inc. closed at $5.01 yesterday.
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