All Eyes on Pandora (P) Acquisition; Top Analyst Weighs in on the Stock


This morning, Pandora (P) and SiriusXM (SIRI) announced a definitive agreement under which SiriusXM will acquire Pandora in an all-stock transaction valued at $3.5 billion. The transaction values Pandora at $10.14 a share, about 12% premium to the company’s closing price on Friday. Pandora investors will receive 1.44 new SiriusXM shares for each share of Pandora they hold. The transaction has been approved by the directors of both P and SIRI, and is expected to close in Q1:19, subject to approval by P stockholders and regulatory approval.

RBC’s top analyst Mark Mahaney commented, “We view this as a logical strategic step for Pandora. Synergies between its very strong in-home U.S. presence and SiriusXM’s very strong in-car presence should be generatable over time. Given rising competitive intensity in this sector, this was likely the safe, smart strategic move by Pandora. Given SiriusXM’s current 15% stake in Pandora, we also view this as a not-too-surprising development. The list of potential competing strategic bidders would include Spotify, Apple, Google, and Amazon, but we believe it reasonably unlikely that any of these companies would come in at this point. The implied bid price of $10.14 is consistent with our $10 PT – which is based on a 1.5X Price/ Sales multiple on our 2019 Revenue estimate of $1.8B – so we view the valuation case here as reasonable.”

“We upgraded P to Outperform on the Q2 EPS print under the belief that Pandora was experiencing a positive fundamental inflection point. We view this transaction as largely confirming that,” the analyst concluded.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Mark Mahaney has a yearly average return of 27.1% and a 72% success rate. Mahaney is ranked #24 out of 4880 analysts.

Net net, cautious optimism circles this streaming giant, as TipRanks analytics exhibit P as a Moderate Buy. Out of 20 analysts polled in the last 3 months, 9 are bullish on Pandora stock, 10 remain sidelined, and 1 is bearish. However, with a slight downside potential, the stock’s consensus target price stands at $9.02.

 

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