NEW YORK (TheStreet) -- Shares of Pandora Media (P) are advancing 2.39% to $12.02 in early-morning trading on Monday after Morgan Stanley upgraded the stock to "overweight" from "equal weight" in a note released earlier today.
Pandora's risk/reward is "compelling," as the core business is currently worth roughly $11 per share, according to the firm. Also, 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.
The Oakland, CA-based 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, Morgan Stanley added.
Pandora's monthly active users listen to about 40 minutes per day, supporting the firm's assumption 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.
Separately, TheStreet Ratings team rates the stock as a "sell" with a ratings score of D.
Pandora's weaknesses include its deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself.
You can view the full analysis from the report here: P
TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this article's author.