One firm thinks investors are sleeping on shares of Pandora Media (P) .

Shares of the audio-streaming giant were surging over 6% during Thursday morning trading after analysts at BMO Capital upgraded its stock to "Outperform" from "Market Perform" with a $7 price target.

The firm acknowledges that while 2018 will be another transition and investment year for Pandora as it lacks near-term catalysts, it contends there are "some underlying secular trends and changes to the business model are being underappreciated."

One facet of its business underappreciated is its potential in audio ads. "Several industry executives we have heard from lately have indicated they are optimistic about the potential of audio ads in 2018," BMO said. "We believe P can be a relative beneficiary as advertiser and agency attention to audio ads increases, and P is also launching new targeting capabilities for this type of listenership."

Pandora could also benefit from its non-music content, specifically podcasts, which carries the potential to reach a wider audience and boost gross margins.

"We believe adding more non-music content, which has lower content costs per duration listened, should help widen P's audience and improve the margin profile over the long term," the firm noted. "While we believe recorded music will always be the number one content type on P, we do believe non-music content can increase substantially from the ~2% that it accounts for right now."

And, BMO argues that Pandora's subscription business is exceeding expectations. "Investors have overlooked the early success of Pandora's subscription business; while we believe it enters a very competitive market, it also improves earnings quality and offers a more visible revenue stream."

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