Here's Why CRT Capital Upgraded Pandora

Shares of

were up more than 4 percent on Wednesday. CRT Capital analysts Robert Coolbrith and Shweta Khajuria upgraded the stock to Buy and raised their price target from $16 to $22. The price target reflects the average of their bull-case and worst-case valuation scenarios. In a report issued Wednesday morning, the firm provides a scenario analysis to back its view of the stock. "While SX-proposed rates would undoubtedly reduce the value of the franchise, we [the analysts] believe an hours cap could limit hypothetical near-term losses, and we peg worst-case valuation at $9 per share (10x worst-case 2020E EBITDA of ~$215M, discounted back at 12%). In contrast, P-proposed rates drive our bull case valuation of $36 per share (12x bull-case 2020E EBITDA of ~$850M, discounted back at 12%)." The firm notes that the analysis "does not contemplate potential sources of optionality, such as international expansion, new revenue streams, or meaningful upside from mobile programmatic advertising."

The Buy rating is based on CRT Capital's view of the potential content cost scenarios, which they believe offer considerably more upside than downside from current levels. The firm also remains confident on Pandora's long-term revenue growth outlook and other sources of optionality.