Piper Jaffray Reiterates Their Buy Rating on Netflix (NFLX) Following Recent Sell-Off

July 7, 2008 8:37 AM EDT

Piper Jaffray reiterates their Buy rating on Netflix (NASDAQ: NFLX) and their $45 price target.

The firm said, "NFLX shares have fallen more than 20% in the last month. We believe the key metrics for Netflix are net sub adds, churn, subscriber acquisition cost (SAC) and gross margin. Based on our scenario analysis of these metrics in CY09, we believe Netflix shares are undervalued. Our analysis looks at a best, worst and mid-case for each of Netflix' key metrics.. Our mid-case scenario for each of these metrics suggests that our $1.50 EPS estimate for CY09 is very achievable. Based on our $1.50 estimate, NFLX shares are currently trading at 18x CY09E EPS, while Street consensus calls for EPS growth of 25% in CY09. In other words, NFLX shares are trading at a 0.7 PEG, with a high likelihood, in our view, of strong results for the next several quarters."

The firm' metrics used in their mid-case Netflix scenario analysis assume a deceleration in net sub adds, increased churn and subscriber acquisition cost and gross margin essentially unchanged for CY 09 vs. CY08.

However, the firm's analysis of website traffic data for Q2 showed NFLX’s website reach increased 2% compared to Blockbuster's (NYSE: BBI) decrease of 22%.

Netflix, Inc. provides online movie rental subscription services.

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