Groupon Erasing Past Management's Shadow

 | Jun 14, 2013 | 11:08 AM EDT  | Comments
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Groupon (GRPN) shares were up 8% in the pre-market, thanks to a Deutsche Bank upgrade of the stock. Analyst Ross Sandler said that the stock is worth $10 instead of his old target of $6.

Late Friday morning, the stock was trading in a range  of $7.35 to $8.03.

What's more, he gets to that price target assuming no multiple expansions. If the company can show top-line growth again, he thinks it would be rewarded with a higher multiple and be able to achieve something like $16 a share.

What's the reason for Sandler's optimism?

Basically, he sees the worst is over for Groupon. He thinks the company is transitioning from a "push" marketing, email-blast company to a "pull" marketing firm. In this mode they are attracting users on mobile looking for deals and an increased SEO/SEM strategy to get in front of users using Google (GOOG) for searching relevant terms.

The net of this switch means that Sandler thinks that Groupon is close to being able to grow its top-line billings by 20% more than the street expects. He also thinks Groupon's earnings before interest, taxes, depreciation and amortization for 2015 could rise by 30%. He expects this to become clear over the coming months.

Another factor at work is here is that Groupon seems on the verge of finally getting its European problems under control. What this means is that they won't necessarily be making a lot of money from the region; it's just that they'll no longer be losing a boatload over there. Success for Groupon will be getting Europe to be neutral for them instead of being such a black hole after their initial aggressive expansion there.

The bottom line is that Groupon seems finally ready to step out of the shadow of their initial CEO Andrew Mason. Under co-CEOs Eric Lefkofsky and Ted Leonsis, the company has been working hard to get all its issues that have dragged down the stock behind them.

Getting to $16 would still leave the company way behind their all-time highs as a public company. But it would certainly be a huge return from the $6 level where it closed Thursday and the under $3 level of a few months ago.

I have been long the stock for about three months now and it's been tumultuous, but certainly a profitable trade over that time. To me, this thing seems like an easy rise to $10 on the first whiff of a great quarter from them -- which has been elusive in the last couple of earnings reports.

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