Upgrade From This Major Firm Sent Pandora (P) Shares Flying

Pandora Media Inc. saw a rise in share price on Monday after Morgan Stanley upgraded the stock to “overweight” from “equal weight” in a note.

The firm wrote that Pandora’s risk/reward is “compelling,” as the core business is currently worth roughly $11 per share and that Pandora should be able to secure rights from music labels to launch an on-demand product that could add another $4 to $7 per share in value.

Morgan Stanley says the music streaming company is positioned to drive subscription on-demand growth due to its leading market share and high engagement in its core radio business.

Monthly active users listen to about 40 minutes per day which gives Morgan Stanely reason to expect that Pandora’s core advertising business will grow revenue 18% in 2016 and 13% on a CAGR basis through 2020 despite maturing user growth.

“More importantly, however, gross margins are set to expand ~300 bps on average annually through 2020 to ~60%, driving adjusted EBITDA growth of 60%+ over that period of time,” Morgan Stanley said.

Disclaimer: We have no position in Pandora Media Inc. (NYSE: P) and have not been compensated for this article.