While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Groupon Inc (GRPN +4.87%) plummeted 19% today after the "daily deals" specialist posted disappointing quarterly results and received an outperform-to-market perform downgrade from Northland Capital Markets.
So what: Along with the downgrade, analyst Darren Aftahi lowered his price target to $7 (from $12), representing about 4% worth of upside to yesterday's close. So, while contrarian traders might be attracted to Groupon's severe pullback in 2014, Aftahi's call could reflect a sense on Wall Street that its operating challenges will continue to weigh heavily on the shares.
Now what: Northland lowered 2014 EPS outlook for Groupon from $0.19 to $0.11, and its 2015 view from $0.37 to $0.22. "Marginal 1Q progress in pull-based search in North America leaves us believing continued aggressive marketing will be needed to meaningfully move that metric up, and to drive local billings growth acceleration," said Aftahi. "Guidance assumes a rather aggressive Adj. EBITDA ramp in 2H14, which, without meaningful progress on both Local growth and Goods margins, may be challenging to achieve." When you couple the strong competitive headwinds facing Groupon with its still-pricey forward multiples, it's tough to disagree with Northland's cautiousness.
