Roku (ROKU) shares surged Monday after Baird analysts raised their rating for the streaming company's stock, despite a fourth-quarter forecast that underwhelmed investors.

The analysts upgraded Roku to “outperform” and raised their price target to $90 from $70, implying about 21% upside after its shares climbed 7% Monday to close at $74.03.

'Increasingly Favorable Industry Trends'

Baird's bullish take comes after Roku's fourth-quarter outlook called for a wider loss than analysts expected and sent shares tumbling. However, Baird noted “increasingly favorable industry trends” for Roku, including a migration of advertising spending toward ads that appear in streaming content. 

Roku possesses "significant existing scale” to take advantage of this trend, the analysts said. They added the company could also benefit as media becomes increasingly fragmented among different streaming services, which “should magnify the importance” of a streaming hub such as Roku. The company has taken some smart monetization steps as well, including the introduction of video ads on its home screen, the analysts noted. 

“We think the stock reaction to the recent 3Q print was more reflective of dynamics around near-term expectations and investor positioning, rather than the fundamental quality of the update,” the analysts said. “Specifically, we think investors may be overlooking the magnitude of outperformance in [fiscal 2024] and the signs of sustainable growth moving forward.”