Analyst Upgrades Netflix Stock, Cites Disney Deal, 'Improving Fundamentals'

Janney Montgomery Scott analyst Tony Wible on Friday turned bullish on Netflix's stock, upgrading it from "neutral" to "buy," citing a recent content deal with Walt Disney and upside amid negative sentiment on Wall Street.

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He also raised his fair value estimate for the stock to $129.

In a report, Wible argued that Netflix, led by CEO Reed Hastings, is seeing "improving fundamentals." And he wrote: "Recent developments, including the Disney [film output] deal, the potential for a Sony deal ... are changing how studios, [pay TV operators] and investors approach the company."

He added that expectations for subscriber growth have come down, and Wall Street sentiment -- with 86 percent of analysts rating the stock at "neutral" or "sell" -- "is generally pessimistic, setting the stage for upside driven by new subs, content cost control (for existing content) and a potential price increase."

Wible also emphasized that despite continued talk about the emergence of Amazon.com and others as streaming video players, "competition has not yet materialized to the extent that it poses significant near-term risk."

Concluded the analyst: "While we still believe Netflix 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."

In pre-market trading on Friday, Netflix shares trended nearly 4 percent higher. On Thursday, they had closed at $97.70. Over the past year, the stock has traded as high as $133.43 and as low as $52.81.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai