Investing.com -- Wolfe Research upgraded Roku (NASDAQ: NASDAQ:ROKU) to Outperform from Peer Perform in a note Thursday, with a price target of $93, citing an improved outlook for the company’s sales growth and profitability.
The firm acknowledged concerns surrounding connected TV (CTV) ad sales but said they believe Roku is positioned to accelerate its growth, benefiting from its leadership in the CTV space and a rising focus on monetization.
"Roku's fundamental risks are falling while its sales growth is poised to accelerate," said Wolfe Research. "ROKU's 2.1x EV/sales multiple undervalues the company's CTV OS leadership and free cash flow potential."
Roku's perceived risks—such as its S&P 500 beta exceeding 2.0 and its evolving business model—are diminishing as the company trims its cost structure and refines its sales strategies, according to the firm.
Wolfe says Roku has successfully defended its position in the CTV market, with more than 40% of U.S. CTV households using its platform. This, coupled with the fact that roughly half of TV viewing remains linear, gives Roku a significant advantage moving forward.
They believe one of the key drivers of Roku’s projected sales growth is The Roku Channel (TRC), which Wolfe estimates will contribute $786 million in sales by 2024.
Programmatic advertising initiatives are expected to boost annual revenue growth into the mid-teens, leveraging Roku's increasingly fixed cost structure to generate meaningful free cash flow.
Wolfe states, "Our '27 high case EBIT margin of 8.7% produces $3.5/sh of FCF after stock compensation."
Roku’s strategic partnerships, such as its expanded integration with The Trade Desk (NASDAQ:TTD), are also anticipated to enhance the company’s ad sales potential by enabling programmatic purchases of CTV ads.
"In this case, 'the people' are CTV ad buyers, and 'what they want' is to buy CTV ads programmatically," adds the firm.
With these factors in play, Wolfe Research is optimistic about Roku’s long-term growth trajectory.