Pandora Shares Reiterated Outperform Ahead Of Q3 Results

• The share price of Pandora Media, Inc. P has risen 30.49 percent in the last three months, reaching a high of $21.98 on October 6.
• Wedbush’s Michael Pachter has reiterated an Outperform rating on the company, with a price target of $26.
• Pachter expects Pandora Media to report robust Q3 results, driven by local advertising and the limited impact of Ticketfly.

Analyst Michael Pachter expects the company to reports its Q3 results at the high end of the guidance range and ahead of the consensus, with revenue of $315 million, EPS of $0.12 and adjusted EBITDA of $32 million.

“We expect increasing local advertising mix to drive revenue growth through 2018, as Pandora’s local sales force grows and its customers increasingly listen in the car,” Pachter said.

Pachter expects the company’s revenue per thousand listener hours to continue to grow at a rate that is faster than the license cost per thousand listener hours, which would drive gross margin expansion.

“While we expect some topline contribution from the Ticketfly acquisition, we expect little EBITDA contribution in 2016 as Pandora will likely invest in integration and enhancement for at least a full year,” the Wedbush report stated.

While investors are focused on the outcome of Pandora Media royalty hearing, Pachter believes that the company should benefit from the favorable opinion that was issued recently by the Register of Copyrights.

Even if the company were to receive an unfavorable ruling, “it has sufficient leverage to allow it to negotiate favorable rates directly with the record labels,” Pachter added.