Shares of Sonos (SONO 0.92%) rose as much as 10% this morning to all-time highs after getting some positive coverage from Wall Street. Morgan Stanley reiterated its overweight rating on Sonos and increased its price target from $30 to $35, which represents 26% upside from yesterday's close. As of 11:50 a.m., the stock had given back some of those gains and was up 5%.
Analyst Katy Huberty is becoming bullish on the audio technology company's business model, arguing that shares are currently undervalued. Revenue and adjusted EBITDA growth is accelerating, and Sonos is making progress on expanding profitability while cash flow improves. Those factors justify the expansion of Sonos' valuation multiples, in Huberty's view. Morgan Stanley also increased its bull case valuation to $52.
"With a clear catalyst path and the potential for Services or IP licensing to become more material drivers of financial results in the future - both of which we liken to free call options at today's price - we continue to recommend accumulating shares and raise our price target to $35 (from $30), or 2.5x EV/Sales, which equates to a target multiple at the midpoint of Logitech (3.7x) and the more cyclical consumer technology stocks like GoPro (1.3x)," the analyst wrote in a research note to investors.
Sonos is scheduled to report fiscal first-quarter results on Feb. 10. The company does not provide quarterly guidance but warned in November that it was anticipating supply constraints over the holiday shopping season. Analysts are modeling for $590 million in sales and earnings per share of $0.87. Huberty believes that strong demand may help Sonos report better-than-expected results next week.