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The Ratings Game

Groupon rallies after ratings upgrade

6/6/12 4:43 PM ET (MarketWatch)

SAN FRANCISCO (MarketWatch) -- Groupon Inc. saw a second day of strong gains Wednesday, as the daily-deals company's shares rose almost 9% following a ratings upgrade.

Stifel Nicolaus analyst Jordan Rohan raised his rating on Groupon (GRPN) to hold from sell and set a "fair value" price range of $8 to $12 a share on the company's stock.

Groupon's shares took the high ground early and closed with a gain of 85 cents, or 8.6%, to $10.63.

In a research note, Rohan said that Groupon's stock has appeared to enter "a new equilibrium range" and should see some stability after a raft of negative events.

Those include Groupon restating its quarterly results in April; an almost 50% drop in the share price since the company went public in November; and two days of selling fueled by the expiration last Friday of the post-IPO lockup period for Groupon's insiders to sell their shares. The end of the lockup restrictions led to Groupon's shares falling to as low as $8.80, and for a while, cutting the market valuation to below the $6 billion level -- which is what Google Inc. (GOOG) reportedly offered for Groupon in late 2010. Read Rex On Techs for more on the discontent surrounding Groupon.

However, Rohan noted that investors already have discounted Groupon's risks, and that he expects the company to develop more growth areas such as direct e-commerce offerings and also to expand its margins.

The analyst's outlook on Groupon came one day after Benchmark Capital analyst Clayton Moran also issued a positive view on the company.

Moran wrote in a note that Groupon's market opportunity "remains enormous" as it continues to branch out more into location-based offerings. He also maintained his buy rating and $20 target price on the stock.