Roku Shares Jump on BoFa Merrill Lynch Coverage

Shares of streaming device maker Roku were headed hire on Monday after BoFa Merrill Lynch initiated coverage on the stock.

Shares gained 7% on Monday as analysts from the bank issued a “buy” rating on Roku shares and said the company should benefit from growing competition in the streaming space.

Analysts led by Ziv Israel gave the stock a price target of $154, or about 8% above its current trading level.

According to the analysts, expectations that a slew of new competitors that are launching streaming services in the near and medium term will have a negative impact on Roku are overdone.

“While known primarily for selling streaming hardware, Roku has effectively shifted to generating the majority of revs through monetizing its user base, primarily through video ads,” the analysts wrote in a note to clients.

The analysts are expecting the company’s strong platform revenue growth to continue as advertisers switch to over-the-top services and Roku should also benefit from demand for affordable smart TVs, enabled by its Roku TV operating system.

Pending competition from Comcast Corp. CMCSA and Facebook is also overdone, they 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.,” said the note. “Furthermore, Roku’s TV OS is the most significant driver of account generation, reducing the importance of device sales to its growth trajectory.” Roku shares have gained 369% in 2019, while the S&P 500 SPX, +0.56% has gained about 21%.

Disclaimer: We have no position in Roku Inc. (NASDAQ: ROKU) and have not been compensated for this article.