Bank Of America Is Bullish On Roku

Shares of Roku Inc ROKU were rising on Monday as Bank of America started coverage of the stock with a Buy recommendation.

The Analyst

Bank of America's Ziv Israel started Roku with a Buy rating and a $154 price target.

The Thesis

Roku's leading position in the video streaming market and the fact that it has effectively shifted to generating much of its revenue through video ads, from its previous focus on hardware sales, impresses Israel.

The analyst also said concerns about negative impacts from new competition is overstated, and that strong revenue growth should continue as advertisers move money into the OTT market. Roku also should benefit from increasing demand for smart TVs, and from its strong brand recognition.

The recent drop in Roku's stock price is mostly from new streaming competition announcements, particularly from Comcast Corporation CMCSA and Facebook Inc. FB, Israel said.

"We view the market reaction as excessively punitive, as total cost of ownership for both products is significantly higher than for the Roku device," Israel wrote in the note.