Roku Channel, New Interface Lift Citi's Rating On The Stock From Sell To Neutral

Roku Inc ROKU's stock started 2018 trading north of $50 and has since lost nearly $20 per share to flirt with Citi's prior price target of $33. Accordingly, a bearish stance on the stock is no longer appropriate.

The Analyst

Citi's Mark May upgraded Roku's stock rating from Sell to Neutral with a price target lifted from $33 to $36.

The Thesis

A bearish stance on Roku dates back to Jan. 5 and was mostly based on the stock's unjustified valuation, May said in a research note, but there are a few catalysts ahead which may imply the stock's downside momentum is over.

The IPO lock-up expiration is this week;

The Q1 earnings report, which should be released the week of May 7;

The introduction of a new "content first" user interface; and

The roll-out of The Roku Channel app on Samsung Smart TVs.

Roku's stock is trading at an enterprise value of $4.1 billion, May said. The stock's valuation also implies a 14 times and 9 times multiple on 2018 and 2019 EV/gross profit basis. All of these multiples are "more reasonable" for a growth company like Roku.

"Even if we broaden out the comp group and look at slightly different valuation multiples, ROKU shares no longer look as expensive as they did in January," May wrote.

Price Action

Despite the upgrade, shares of Roku were trading lower by nearly 3.8 percent Tuesday at $33.25.

Related Links:

Oppenheimer Upgrades Roku After Sell-Off: 'No Longer A Compelling Short'

Citi Analyst Sees Roku Falling 45%, Downgrades To Sell

Photo courtesy of Roku.