UPDATE: UBS Upgrades Netflix (NFLX) to Buy on Attractive Risk/Reward

(Updated - April 13, 2015 11:18 AM EDT)

UBS upgraded Netflix (NASDAQ: NFLX) from Neutral to Buy with a price target of $565. Analyst Doug Mitchelson pointed to attractive risk/reward, with 2-to-1 upside vs downside based on his scenario analysis ($942/shr vs. $243/shr). He also thinks Netflix will continue to have sufficient access to content despite concerns studios and networks are pulling back.

"We now have increased confidence for accelerating int'l net additions each of the next few years given UBS Evidence Lab tracking of iPhone and iPad application rankings in each of Netflix's markets. Further review of the UBS Evidence Lab consumer survey conducted last Nov. underscored Netflix's competitive advantages and differentiated positioning, increasing our confidence in U.S. growth prospects, even in the face of an accelerating pace of OTT launches (which we expect are more good news than bad news, in any case)," said Mitchelson.

"Despite growing concerns media studios/networks will start pulling back from selling content to Netflix, after reviewing the media landscape, including discussions with each of our media companies over time, we firmly believe Netflix will sustain sufficient access to content," continued the analyst.

Overall, Mitchelson thinks the stock is a compelling investment.

"We believe Netflix is a: (1) a unique play on global online video growth; (2) has sufficient scale to sustain business model even in the face of any irrational behavior by competitors / content suppliers; (3) its scale advantages are only widening; (4) has an advantaged, differentiated competitive position; and (5) an attractive business model," added the analyst. "Given the Company's original content ramp, we found a greater int'l ARPU opportunity than previously forecast (2020E $9.09=>$11.22); we now expect int'l profits surpass the U.S. in 2020. This change drove our target price significantly higher (85% of our move from $370 to $565) with the rest due to its recent debt raise lowering WACC."

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 $454.57 yesterday.

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