3 Ways Pandora Can Generate Some Significant Upside

FBR's Barton Crockett added shares of Pandora Media Inc P to the firm's "Alpha Generator list" while maintaining an Outperform rating and $11 price target for three key reasons.

First, Pandora is better positioned to perform in the streaming music space following a $480 million strategic investment from Sirius XM Holdings Inc. SIRI. Sirius also gains three board seats, including the chairman title, which implies it has a strong desire for Pandora to succeed.

Second, Pandora's opportunity in the advertising space has notable upside since it accounts for 10 percent of the entire radio listening market but only a 2-percent share of local radio advertising. By closing the gap Pandora could boost its EBITDA by nearly $500 million and the SiriusXM team has the relevant experience to help in this area.

Third, Pandora's Premium offering saw a slow debut, but it could accelerate by offering exclusive content and high-profile original content. Again, SiriusXM boasts the necessary experience in this area as it has seen tremendous success with one of its biggest stars, Howard Stern.

The analyst acknowledged that even if his bullish stance doesn't play out, Pandora's cost-cutting initiatives minimizes the stock's risk. SiriusXM is "excellent" at cost controlling and could push Pandora to lower operating expenses and generate nearly $300 million of incremental EBITDA.

Bottom line, assuming even "modest" success in radio and subscription by 2020 alone derives the analyst's $11 price target.

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