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Roku: 4 Reasons Why KeyBanc Recommends The Streaming Stock

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Roku: 4 Reasons Why KeyBanc Recommends The Streaming Stock
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Roku Inc (NASDAQ: ROKU) is headed for long-term growth over a period of many years, according to KeyBanc Capital Markets. 

The Analyst

KeyBanc's Evan Wingren initiated coverage of Roku with an Overweight and $42 price target.

The Thesis

The bullish case for Roku stock is fourfold, Wingren said in the initiation note. (See the analyst's track record here.)

  • The ongoing transition from traditional TV toward streaming content is a long-term theme. Ad-supported streaming will see continued adoption over the long term, creating a tailwind for Roku, the analyst said. 
  • Roku boasts a key differentiator compared to its rivals, Wingren said: it gives its proprietary operating system to TV original equipment manufacturers, which creates a "symbiotic relationship" that should add to the company's leadership position in TV operating system development.
  • The Roku Channel is still in its early days, but has the long-term potential to develop ad-supported streaming viewership, Wingren said. Over time, legacy media companies will likely turn to Roku to capture a growing portion of library content, as it can offer variable economics to partners.
  • The midpoint of Roku's 2018 guidance of 30-35 percent revenue growth and gross profit growth of 38-48 percet implies that incremental gross margins will fall from 78 percent to 50-60 percent, according to KeyBanc. A decline of this magnitude appears to be "unlikely," Wingren said. 

Roku is a "unique play" on the shift toward streaming online video, the analyst said. KeyBanc's $42 price target is based on 10x 2019 EV/gross profit, which is in-line with peers despite a higher average gross profit growth profile.

Price Action

Roku shares were up 1.2 percent at $32.93 after the open Tuesday. 

Related Links:

Amazon, Best Buy Smart TV Partnership Hurts Roku

Streaming Wars Intensify As Roku, Amazon Signal New Initiatives

Photo courtesy of Roku. 

Latest Ratings for ROKU

DateFirmActionFromTo
Dec 2018DA DavidsonUpgradesNeutralBuy
Nov 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight
Nov 2018WedbushUpgradesNeutralOutperform

View More Analyst Ratings for ROKU
View the Latest Analyst Ratings

Posted-In: Evan Wingren KeyBanc Capital Markets streaming videoAnalyst Color Price Target Initiation Analyst Ratings Media Best of Benzinga

 

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