Research firm Piper Jaffray upgraded Groupon (GRPN) to Overweight from Neutral, saying that the Street is greatly underestimating the positive impact of the company's marketing push.
MARKETING TO BOOST BUSINESS: Noting that Groupon is increasing its marketing spending by $150M-$200M this year compared with 2015, Piper analyst Samuel Kemp thinks that the company's marketing ramp will enable it to gain 3.5M-4.5M new accounts this year and in 2017. Although the Street has baked Groupon's marketing spending into its models, it has not adequately increased its gross profit estimates to account for the new customers that the spending will generate, Kemp reported. Specifically, the analyst says that Groupon's new customers will probably increase its annualized gross profit by $215M-$280M, while the Street predicts that the company's gross profit will only increase by $142M between 2016 and 2018. Kemp estimates that Groupon's 2018 earnings before interest, taxes, depreciation and amortization will beat the Street's consensus outlook by 20%. Calling the stock's valuation "attractive," Kemp set a $6 price target and Overweight rating on the shares.
PRICE ACTION: In morning trading, Groupon jumped 10.7% to $3.87 per share.
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