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Bob Peck Sees A Series Of Catalysts For Pandora, Upgrades Rating To Buy

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Bob Peck Sees A Series Of Catalysts For Pandora, Upgrades Rating To Buy
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Direct deals with music labels, the launch of new tiered products and reporting higher-than-projected results could act as catalysts for Pandora Media Inc’s (NYSE: P) stock, SunTrust Robinson Humphrey’s Bob Peck said in a report. He upgraded the rating on the company from Neutral to Buy, while raising the price target from $12 of $18.

Direct Deals With Music Labels

The company is likely to ink direct deals with music labels in the near term and this would add a new interactive tier. Peck commented that this could help Pandora to “recapture a portion of current churn,” which would add an estimated 4 million subs per annum, boosting revenues by ~15 percent and profits by 4-9 percent.

Beating Expectations

“We think the company did the right thing in setting a low bar for the Street as it maneuvered through the large business changes, giving room to beat consensus,” the analyst wrote. He added that his estimates indicated upside to 2017 revenues and EBITDA of $1.6 billion and $47 million, respectively.

M&A Potential

Peck commented that although the upgrade in rating wasn't based on Pandora being acquired, there are a number of factors that support this outcome, including:

  • A large activist shareholder has pushed for this
  • There are reports indicating Liberty Media Group (NASDAQ: LMCA) has already offered $15 per share, setting a floor
  • Scale and redundancies would boost the company’s health in the long term

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Latest Ratings for P

DateFirmActionFromTo
Jul 2017Morgan StanleyReinstatesOverweightOverweight
Jun 2017Pacific CrestUpgradesUnderweightSector Weight
Jun 2017OppenheimerDowngradesOutperformPerform

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