MoffettNathanson downgraded television streaming platform Roku (ROKU) from Hold to Sell due to concerns that the market’s optimism is overblown. The firm, led by Michael Nathanson, believes that the recent stock rally has been “fueled by M&A speculation,” even though no credible buyers have emerged. As a result, Roku shares are down at the time of writing following the downgrade.
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The analysts warned that the hype surrounding a possible buyout distracts from the real challenges the company faces, which include increased pressure across its business segments. They also emphasized that even with their relatively optimistic near-term forecasts, the stock remains significantly overvalued. In addition, a major concern is Walmart’s (WMT) recent acquisition of Vizio, which could hurt Roku’s retail position.
Walmart accounts for 25% of Roku’s retail sales, and the deal may lead to increased competition, which would pressure margins and boost marketing costs. To make things worse, MoffettNathanson cut its price target for Roku by $20 to $55 – a potential 31% downside from current levels. It’s worth noting that, so far, Nathanson has enjoyed an 80% success rate on ROKU stock, with an average return of 21.7% per rating.
What Is the Fair Value of Roku Stock?
Overall, analysts have a Moderate Buy consensus rating on ROKU stock based on nine Buys, 10 Holds, and two Sells assigned in the past three months, as indicated by the graphic below. After an 8% decline in its share price over the past year, the average ROKU price target of $81.17 per share implies 1.8% upside potential.
