Online e-commerce company Groupon Inc (NASDAQ:GRPN) will step into the earnings limelight after the close of trading tomorrow night, and Wall Street is expecting a rebound in earnings and revenue for the firm. Analysts are looking for a rise in U.S. billings to drive GRPN earnings 25% higher to 3 cents per share, on a 25% spike in revenue to $900 million.
As evidenced by the rebound in Groupon stock in recent months, Groupon earnings have been strong during the past year. In fact, the company has topped the consensus estimate in three of the past four reporting periods.
As such, there are whispers that the analyst community has set its sights a bit higher than the consensus, with EarningsWhipser.com setting GRPN’s whisper number at 5 cents per share.
But while short-term expectations may be elevated, the brokerage bunch still has reservations about GRPN’s longer-term outlook. For instance, data from Thompson/First Call reports that only eight of the 23 analysts following GRPN stock rate it a “buy” or better, versus 14 “holds” and one “sell” rating.
Additionally, the 12-month consensus price target of $8 represents a meager premium of 7.8% to yesterday’s close.
Short sellers, meanwhile, have taken large positions betting against GRPN. As of the most recent reporting period, 78.8 million shares of GRPN stock were sold short, representing nearly 19% of the stock’s total float, or shares available for public trading. If Groupon can impress the Street with tomorrow’s quarterly report, these shorts could be squeezed into quickly buying back their positions.
Turning to the options pits, it appears that short sellers could be a bit worried about a GRPN stock rally. The February/March put/call open interest ratio currently rests at 0.68, with calls easily outnumbering puts among short-term options. Since short sellers often buy calls as a hedge, some of GRPN’s call activity could be related to hedging activity — although I would expect this ratio to be considerably higher if there were any real concern.
Click to Enlarge Overall, weekly Feb 13 series option implieds are pricing in a potential post-earnings move of 13% for GRPN stock. This places the upper bound at $8.48, while the lower bound lies at $6.52.
A post-earnings rally would put GRPN near fresh 52-week high territory, while a decline would push the stock below key support at GRPN’s 200-day moving average.
Those traders looking to side with the short-term bulls on GRPN heading into tomorrow’s report might want to consider a Feb $7.50/$8.50 bull call spread. At last check, this spread was offered at 34 cents, or $34 per pair of contracts. Breakeven lies at $7.84, while a maximum profit of 66 cents, or $66 per pair of contracts, is possible if GRPN stock closes at or above $8.59 when February options expire in two weeks.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
