Why BofA Is Upgrading Sonos Ahead Of Smart Speaker Stock's Q4 Report

The recent pressure on Sonos Inc’s SONO stock that followed Apple Inc’s AAPL decision to remove third-party speakers from its website seems to be overdone, according to BofA Securities.

The Sonos Analyst: John Babcock upgraded Sonos from Neutral to Buy and raised the price target from $17.50 to $18. 

The Sonos Thesis: The company has been witnessing encouraging demand trends and seems poised to generate revenues at the higher end or above the guidance for the fiscal fourth quarter, Babcock said in a Thursday upgrade note. 

Although revenue generation was muted in the fiscal second and third quarters, mainly due to inventory rebalancing, retail store closures and supply chain restraints, Sonos could report a strong quarter driven by persistent strength in the home-related categories, the analyst said. 

“Spending on home-related categories (including home improvement, furniture & home goods, consumer electronics (CE) & hobby retailers and bedding) has remained quite strong and was up 27% y/y in the week ending October 3 with 17.6% y/y growth for CE & hobby spending,”  he said.

“SONO also continues to have several products on backorder including its Arc and Sub products that were just launched in June, suggesting still strong demand even as backlogs are off peak levels.”  

SONO Price Action: Shares of Sonos were up 3.81% at $14.84 at last check Thursday. 

Photo courtesy of Sonos.