Groupon Inc.'s shares jumped Thursday after Morgan Stanley analysts upgraded their rating on the online deal company's stock.
THE SPARK: The analysts gave Groupon's stock an "Overweight" or "Buy" rating, up from "Equal Weight," or "Hold." They also raised their price target to $14 from $11. The team led by Scott Devitt and Jordan Monahan said in a research note that the company's recent turnaround in North America and new business model should translate to further improvements ahead.
THE BIG PICTURE: Groupon has moved to a new model in the U.S., in which it keeps a bank of deals that consumers can search through and buy at their discretion.
The analysts said this model — based on consumers pulling deals they want, rather than the company pushing them out through emails — allows customers to better find what they are looking for. It also allows Groupon to offer significantly more deal options.
Groupon is expected to roll this out to other major markets.
The Chicago-based company also recently named co-founder Eric Lefkofsky it permanent CEO and posted stronger-than-expected revenue for the second quarter. Lefkofsky, who is Groupon's largest shareholder, replaced Andrew Mason, who was fired in February amid growing concerns about Groupon's financial and stock performance.
THE ANALYSIS: Morgan Stanley analysts said that the company's turnaround in North America indicates that the company has solved the issues that plagued it in 2012. The analysts said that they believe the bulk of the company's struggles stemmed from the limitations in the prior model. The analysts anticipate the rollout of this deal bank format will benefit its business overseas.
Groupon has also been able to build a stronger mobile platform under this new model, which they anticipate will continue to benefit the company.
SHARE ACTION: Groupon shares increased 37 cents, or 3.6 percent, to close at $10.67, after spiking as high as $11.04 during the session. Its stock is at the upper end of its 52-week trading range of $2.60 to $11.22. It has not yet regained the $20 price it debuted at in November 2011.