Smart speaker maker Sonos Inc. (NASDAQ: SONO) posted a strong third-quarter beat Wednesday, but investors aren’t hearing how good things sound for the growing company, sell-side analysts said.
The company’s new partnership with Ikea, which will sell Sonos connected speakers, and another year of revenue and earnings growth don’t seem appreciated given the stock’s low price, they said.
Morgan Stanley’s Katy Huberty maintained an Overweight rating on Sonos with a $15 price target.
Stifel’s Matthew Sheerin maintained a Hold rating and $11 price target.
D.A. Davidson’s Tom Forte reiterated a Buy rating and $20 price target.
Morgan Stanley’s Huberty said Sonos is set to deliver a third straight year of 10% year-over-year revenue growth and 20% EBITDA growth — and it isn't priced into the stock.
Early reviews of the company’s new Ikea product are positive, and its stronger EBITDA outlook suggests little impact from tariffs and an improving cost backdrop, the analyst said.
Strong customer appreciation and loyalty for Sonos products, expansion into new markets and a broad product offering set it apart from other small-cap consumer hardware companies, she said. But Sonos shares haven’t reflected that success.
"We'd expect shares to re-rate higher toward our unchanged $15 price target ... as the Street credits Sonos for consistent growth and execution."
Lower Sales Guidance On FX
Stifel’s Sheerin said that despite Sonos’ earnings and revenue beats and double-digit sales growth on major products, the company guided fiscal 2019 sales lower, primarily due to foreign exchange headwinds.
Otherwise, Sheerin said management was upbeat about its new product launches with Ikea and has increased research and development spending, a sign that it continues to fuel its product pipeline.
“We believe sell-through of the IKEA products, as well as a strong product lineup for Q1FY20, will be important contributors to the growth story next year, though visibility at this point is limited,” the analyst said.
D.A. Davidson’s Forte also praised the IKEA partnership and new product line, which he said would give the speaker company opportunities to expand its appeal.
“We continue to believe that strong Sonos' operating metrics are not reflected in the share price, as the public markets are not giving it proper credit for: 1) continued product innovation with best-in-class technology and strong customer reviews, 2) an evolving platform that continues to add partners such as Google, and 3) strong operating metrics despite the hyper-competitive environment,” the analyst said in a Thursday note.
Investors appeared to hear the message a little better Thursday: Sonos shares were up 4.92% at $10.66 at the close.
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Photo courtesy of Sonos.
Latest Ratings for SONO
|Apr 2019||Initiates Coverage On||Buy|
|Aug 2018||Initiates Coverage On||Outperform|
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