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Buy Roku shares because it's the dominant leader in streaming video players: KeyBanc

Key Points
  • KeyBanc Capital Markets initiates coverage for Roku shares with an overweight rating, predicting the company will generate strong sales growth over the next two years.
  • "We see it as a unique platform play on the growth in long-form streaming video, with a strong competitive position and improving fundamentals," the firm says.
The Roku IPO at the Nasdaq, September 28, 2017.
Source: Nasdaq

Roku will be one of the big beneficiaries from the secular shift to internet video content, according to one Wall Street firm.

KeyBanc Capital Markets initiated coverage for Roku shares with an overweight rating, predicting the company will generate strong sales growth over the next two years.

"We recommend buying ROKU. We see it as a unique platform play on the growth in long-form streaming video, with a strong competitive position and improving fundamentals," analyst Evan Wingren wrote in a note to clients Monday. "We believe its purpose-built TV operating system, OEM relationships, growing platform, and early content efforts set it up for long-term value creation as streaming video continues to see adoption globally."

Roku shares closed up 1.3 percent Tuesday. The company sells streaming video players and licenses its operating system to television manufacturers, which enables consumers to watch video content over the internet.

Wingren started his price target at $42 for Roku shares, representing 29 percent upside to Monday's close.

The analyst said the company is the market leader in video streaming players with a more than 35 percent share. He noted the company said its operating system was included in about 20 percent of smart televisions sold in the U.S. and Canada last year. Wingren predicts Roku will grow revenue on its platform by more than 60 percent per year in 2018 and 2019.

"Roku players and smart TVs enable it to capitalize on the growing secular shift to streaming video," he wrote. "Although the majority of streaming viewing has shifted to ad-free environments, we believe that ad-supported streaming will continue to see strong adoption over the long run and could provide a tailwind to Roku."

Roku is slated to report its first-quarter earnings results on May 9.

— CNBC's Michael Bloom contributed to this story.

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