Schaeffer's Trading Floor Blog

Groupon Inc (GRPN): Poised for Post-Earnings Gains?

GRPN will report fourth-quarter earnings tomorrow evening

by 2/19/2014 11:34 AM
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Groupon Inc (NASDAQ:GRPN) is scheduled to step up to the earnings plate after the close tomorrow. Ahead of that announcement, sentiment is divided both on and off of Wall Street, despite the online deal king's long-term technical successes. Specifically, the stock has tacked on nearly 73% in the past year, and outperformed the broader S&P 500 Index (SPX) by almost 8 percentage points during the previous 60 sessions.

Digging into the details, the average 12-month price target for GRPN is $12.25, representing a healthy 19.6% premium to the current price of $10.24. Nevertheless, of the 21 analysts covering the equity, just nine have given it a "buy" or better rating, compared to 11 tepid "holds" and one "strong sell" recommendation. In other words, the door is wide open for a round of analyst upgrades, which in turn could push the stock even higher.

Elsewhere, option traders have been scooping up calls over puts at a faster-than-usual rate in recent months. Specifically, GRPN's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio sits at 3.37, with more than three calls bought to open for each put during the last two-plus months. This top-heavy ratio also ranks in the 83rd percentile of its annual range, meaning the pace of call buying (relative to put buying) is elevated, relatively speaking.

Taken alone, the aforementioned options activity expresses optimism. However, it is clouded by high levels of short interest. Specifically, 36.5 million GRPN shares are sold short -- up from 24.6 million on Oct. 1 -- representing 8.6% of the stock's total available float. In other words, it's possible that the uptick in call buying is being fueled by short sellers looking to hedge their bearish bets. In any case, a positive post-earnings reaction could force the shorts into covering mode, adding fuel to the security's fire.

Speaking of earnings, Groupon Inc (NASDAQ:GRPN) has matched or exceeded analysts' bottom-line estimates in six of its last seven quarterly reports. The effect has been impressive of late. In the week following the company's three most recent trips into the confessional, the shares have tacked on 12.8%, 17.1%, and 22.7%. Analysts are expecting a per-share profit of 2 cents this time around, representing a 3-cent improvement from year-ago results.


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