Shares of Groupon GRPN rallied more than 4% in early morning trading Monday after analysts from Morgan Stanley said that online deal website's 15% year-to-date slump is "overdone."
In a note to clients published Monday, Morgan Stanley's Jonathan Lanterman upgraded Groupon to equal weight from underweight and raised his price target for the stock to $4.40 from $4.30. Lanterman argued that GRPN is "fairly valued with limited downside" at the stock's current valuation of 7.5x 2019E EBITDA.
The analyst also mentioned that Groupon's recent investments in strengthening its core business could generate earnings growth, while the company's overall international opportunity remains relatively intact.
Groupon has been sold off since its Q4 earnings announcement a few weeks ago. Management reported adjusted earnings of $0.07 cents per share, missing the Zacks Consensus Estimate of $0.09. Total revenues came in at $873.2 million, down about 3.5% on a year-over-year basis.
The company has been trying to reduce dependence on deals and is shifting focus towards the local services market. Groupon's famous specials and coupons bring in plenty of revenues, but that business operates with razor-thin margins. The Chicago-based firm hopes that a local services focus will be more profitable.
Management has been busy building partnerships to make this shift a reality. The company now teams up with Grubhub GRUB , enabling its users to order food delivery from around 55,000 restaurant partners of Grubhub via Groupon's platform. Groupon also recently inked a partnership with ParkWhiz that will provide its users to reserve convenient parking spots before reaching a particular destination.
GRPN is currently sporting a Zacks Rank #3 (Hold). The company has witnessed mixed analyst activity, with three positive full-year 2018 earnings estimate revisions and six negative revisions coming in over the past 30 days.
Thanks in part to these revisions, the Zacks Consensus Estimate is now calling for Groupon to witness adjusted earnings of $0.20 per share this fiscal year. This result would represent year-over-year earnings growth of more than 80%. However, the company's top line is projected to contract about 7%.
Want more market analysis from this author? Make sure to follow @ Ryan_McQueeneyon Twitter!
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.