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Speaker Maker Sonos’ Shares Skyrocket on Earnings Beat; Target Price $30

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Vivek Kumar
·4 min read
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Sonos, a U.S. developer and manufacturer of wireless home audio products, reported better-than-expected revenue and profit in the fiscal fourth quarter and forecasts revenue in the range of $1.44 billion to $1.5 billion for fiscal 2021, sending its shares up over 20% in extended trading on Wednesday.

The company said its revenue increased 16% year-over-year to $339.8 million; excluding the impact of the 14th week, revenue increased by about 7% year-over-year. That was higher than the market expectations of $298.8 million.

The U.S. speaker maker said its GAAP diluted earnings per share rose to $0.15 from $0.28 loss last year; non-GAAP diluted earnings per share excluding stock-based compensation, restructuring, and legal and transaction-related fees climbed to $0.33 from $0.15 loss seen last year, beating Wall Street consensus of 0 cents.

“Sonos’ Q4 print will fuel the bull case for the stock with a record 14% and 69% beat on revenue and EBITDA and FY21 EBITDA guidance $78M ahead of Street at the midpoint. While we acknowledge the structural improvements to the business, particularly a higher margin profile, a new $50M share repurchase program, and a larger DTC business (21% of rev in FY20 vs. 12% in FY19), we believe valuation is fair at 10x our raised FY22 EBITDA estimate,” said Brent Thill, equity analyst at Jefferies, who gave a price target to $22.

Sonos forecasts adjusted EBITDA in the range of $170 million to $205 million, representing growth in the range of 57% to 89%, or 21% to 46% excluding the effect of tariffs in fiscal 2020.

Post this announcement, Sonos shares jumped over 20% to $21.0 in the after-hours trading on Wednesday; the stock is up about 10% so far this year.

Executive Comments

“Fiscal 2020 was the 15th year in a row we grew total households by at least 20%, while our existing customers once again showed strong repurchase habits, accounting for a record 41% of total product registrations. We deliver a consistent cadence of new, innovative products and services, and we have only started the process of realizing the lifetime value of our customers, both old and new,” said Patrick Spence Sonos CEO.

“In fiscal 2020, we delivered a record 8.2% adjusted EBITDA margin or 10.6% excluding the effect of tariffs, and we project delivering 12% to 14% adjusted EBITDA margins next year, which is ahead of our prior targets,” Spence added.

Sonos Stock Price Forecast

Two equity analysts forecast the average price in 12 months at $18.50 with a high forecast of $19.00 and a low forecast of $18.00. The average price target represents an 8.25% increase from the last price of $17.09. Those two analysts rated “Buy”, according to Tipranks.

Morgan Stanley gave the base target price of $30 with a high of $45 under a bull-case scenario and $10 under the worst-case scenario. The firm currently has an “Overweight” rating on the speaker maker’s stock.

“We continue to believe SONO is undervalued relative to its consistent growth profile with $45 bull case better reflecting growth peers. We raise our FY21 EBITDA 60% and PT to $30 (vs $20),” said Katy Huberty, equity analyst at Morgan Stanley.

Several other analysts have also recently commented on the stock. BofA Global Research increased their stock price forecast to $18 from $17.50 and raised the rating to “Buy” from “Neutral”. ValuEngine upgraded shares of Sonos to a “buy” rating from a “hold”. Raymond James cut Sonos to a “market perform” rating from a “strong-buy” rating.

Analyst Comments

“Sonos leverages its wireless multi-room technology to expand its product portfolio and gain share in an $18B+ home audio market. While Sonos has historically been valued as a single-product, product cycle-dependent hardware company, it is becoming clear that consistent product launches, strong new household growth and growing engagement with existing households combine to deliver the consistent top and bottom-line growth not enjoyed by many of its consumer hardware peers,” said Katy Huberty, equity analyst at Morgan Stanley.

“We see a compelling risk-reward with Sonos trading in-line with challenged consumer electronics peers, along with a clear catalyst path including new product launches, new services revenue streams and a March 2021 analyst day,” Huberty added.

Upside and Downside Risks

Risks to Upside: 1) Sonos speaker demand accelerates faster than expected. 2) New service launch adoption significantly ramps and becomes a contributor to growth. 3) DTC demand grows faster than expected – highlighted by Morgan Stanley.

Risks to Downside: 1) Consumer spending fails to improve in 2021. 2) Product launches are delayed by component shortages. 3) Difficulties forecasting new product contributions. 4) New products or strategic announcements by large tech competitor.

Check out FX Empire’s earnings calendar

This article was originally posted on FX Empire