Roku Gets An Upgrade To Buy, DA Davidson Says US-China Truce Bodes Well For The Company

U.S. President Donald Trump and his Chinese counterpart President Xi Jinping over the weekend agreed to a 90-day truce period. The latest development bodes well for streaming video company Roku Inc ROKU, according to DA Davidson.

The Analyst

DA Davidson's Tom Forte upgraded Roku from Neutral to Buy with an unchanged $49 price target.

The Thesis

The trade war between the U.S. and China will be put on hold for a 90-day period, which alleviates a near-term risk to Roku's stock. Specifically, Forte says it's likely all of Roku's products are manufactured in China and now won't be subject to harsh tariffs. The truce period lasts 90 days, so Roku's concerns of higher tariffs isn't fully eliminated at this time.

Roku's stock has fallen close to 50 percent from its 52-week high of $77.57, which Forte says now prices in external risks from competitors, including Amazon.com, Inc. AMZN.

Roku has three potential catalysts over the next 12 months that could support the stock, including:

• The continued shift of over-the-top viewership of video content.
• Better than expected growth in higher margin platform sales.
• The inclusion of new streaming content, such as ESPN+.

Price Action

Shares of Roku were trading higher by 5.5 percent to $43 early Monday morning.

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Photo courtesy of Roku.