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

Roku Inc ROKU investors got an upgrade from Wall Street on Tuesday, but it’s not the type of upgrade that inspires too much excitement.

The Analyst

Oppenheimer analyst Jason Helfstein upgraded Roku from Underperform to Perform and removed his $33 price target.

The Thesis

After a 38.6 percent sell-off in the path three months, Helfstein said Roku no longer looks like a compelling short at its current valuation.

“Shares have declined to $34 or 9x implied 2019E platform gross profit from a peak of $57 or 14x 2019E platform gross profit,” Helfstein wrote in the note. “We now see risk-reward as neutral to favorable as 2018 guidance now reflects the negative impact of ASC 606.”

Helfstein said there are a number of potential positive catalysts for Roku, including the 2018 launch of the Roku Channel, the acceleration of skinny TV bundle adoption, and automatic content recognition monetization.

At the same time, Roku’s lockup expiration on March 27 could be a bearish event for the stock, but Helfstein says the majority of the unlocked shares are likely safe from selling pressure.

Amazon.com, Inc AMZN recently announced it's creating a new ad-supported video on demand product similar to Amazon Channels that could shake up the over-the-top streaming market.

Despite removing the price target, Helfstein said $33 is still a reasonable fair value estimate for the stock.

Price Action

Roku's stock bounced 1.8 percent on Tuesday morning to $34.43 following the upgrade. Despite the sell-off in recent months, the stock is still trading well above its 2017 IPO price of $14 per share.

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