Goldman Sachs Sees 34% Upside in Pandora (P) and Adds Stock to Conviction Buy List

October 4, 2016 6:33 AM EDT
Get Alerts P Hot Sheet
Price: $12.83 +0.16%

Rating Summary:
    22 Buy, 21 Hold, 2 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 14 | Down: 19 | New: 11
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(Updated - October 4, 2016 8:24 AM EDT)

Goldman Sachs upgraded Pandora (NYSE: P) from Buy to Conviction Buy with a price target of $19.00 (from $17.00), implying upside of 34%. Analyst Heath P. Terry thinks new product offerings will expand its addressable market.

"While the company faces meaningful execution and competitive risks as it launches new subscription models and transitions its ad-supported business to direct label relationships, we see significant potential upside to out-year estimates from premium radio and on-demand subscriptions. With the current valuation at 2.1X 2017E sales, having underperformed the median SMid-cap internet company by 35ppt over the last 12 months, the potential upside more than offsets those risks. Therefore, we are Buy rated (CL) and raise our 12-month price target to $19 from $17 to reflect that optionality," said Terry.

Discussing new product offerings, the analyst said, "While we did not look favorably on abandoning the favorable CRB results of Dec ’15, we do believe that Pandora’s new product offerings could significantly expand its addressable market. The mid-priced premium radio product, particularly with the addition of offline listening, along with a differentiated on demand product that leverages Pandora’s data, technology, and audience, should not only reach an audience Pandora historically hasn’t but also an audience its competitors haven’t. With 10% of US radio listener hours and the potential to see that accelerate with the growing ubiquity of connected cars and devices, we believe Pandora’s existing 5% share of the $17bn ad- supported radio market should expand. We also see the synergies in tickets as potentially going beyond the company’s $300mn estimate for 2020."

For an analyst ratings summary and ratings history on Pandora click here. For more ratings news on Pandora click here.

Shares of Pandora closed at $14.16 yesterday.

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