Janney Montgomery Scott Upgrades Netflix (NFLX) to Buy, a Short Squeeze in the Making

January 18, 2013 6:44 AM EST
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Price: $138.60 +0.14%

Rating Summary:
    33 Buy, 23 Hold, 9 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 30 | Down: 30 | New: 23
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Janney Montgomery Scott upgraded Netflix (NASDAQ: NFLX) from Neutral to Buy with a price target of $129.00.

Analyst Tony Wible said said the company will benefit from a reduced float that will amplify improving fundamentals.

"Recent developments, including the DIS deal, the potential for a Sony deal, and the new CDN platform, are changing how Studios, MSOs, and investors approach the company," the analyst comments. "Expectations for sub growth have come down, and sell side sentiment is generally pessimistic, setting the stage for upside driven by new subs, content cost control (for existing content), and a potential price increase. Competition has not yet materialized to the extent that it poses significant near-term risk."

He continued, "While we still believe NFLX earnings growth will be subdued in the foreseeable future, in part due to international expansion costs, we believe investors are looking past this and valuing the company more on its longer term growth potential, implying that a higher multiple can be sustained. There may be near term volatility around earnings, but we believe any pullbacks represent buying opportunities."

Commenting on the bearish sentiment and short squeeze, Wible notes sellside sentiment is bearish, with 86% of coverage at Neutral or Sell. "Estimates for 2013 and 2014 have been coming down since October. In addition, NFLX has a significant short interest of 23%, or 33% of the available float once long-term/strategic holders are excluded. Improving fundamentals could point to a short squeeze in the making."

For an analyst ratings summary and ratings history on Netflix click here. For more ratings news on Netflix click here.

Shares of Netflix closed at $97.70 yesterday.

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