Netflix (NFLX) Faces 'Transition Risk' but Valuation Compelling; Stifel Upgrades to Buy

(Updated - January 14, 2015 11:52 AM EST)

Stifel upgraded Netflix (NASDAQ: NFLX) from Hold to Buy with a price target of $380.00. Analyst Scott W. Devitt sees compelling risk/reward despite "transition risk" and a potential 10%-15% drop in shares.

"While the company continues to experience a transition between slowing subscriber growth in the profitable U.S. segment and international expansion, we believe shares in the low-$300 range provide a compelling risk-to-reward ratio given the strong content cycle, reset expectations following a few quarters of lower subscriber net adds, and recent / upcoming international launches," said Devitt.

"The company's 4Q guidance calls for a third consecutive quarter of lower domestic net subscriber additions relative to prior year. We believe another miss on subscriber estimates may cause shares to drop another 10%-15% and will likely heighten investor's perception and discussion of competitive risks. However, we believe there is a positive risk-to-reward ratio at this time given reset expectations, an exciting content cycle for 2015, and international growth opportunities," continued the analyst.

"We are upgrading in front of reported results because the stock has fully retraced its post 3Q sell-off and now offers a bull case of $450 over 12 months offset by a bear case of continued transition that could take the stock down to the $290-$300 level (~$20B enterprise value)," he added.

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 $323.79 yesterday.

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