Here's Why Netflix, Inc. Shares Will Fly to $425

Does this analyst make a good case or from is it just more noise Wall Street?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Apr 22, 2014 at 10:34AM
Technology and Telecom

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Netflix (NASDAQ:NFLX) popped 8% in premarket trading Tuesday after the video streaming service posted strong Q1 results and received a hold-to-buy upgrade from Cantor Fitzgerald.

So what: Along with the upgrade, analyst Youssef Squali boosted his price target to $425 (from $405), representing about 23% worth of upside to yesterday's close. So while momentum traders might be turned off by Netflix's price pullback in recent weeks, Squali's call could reflect a growing sense on Wall Street that its subscriber growth prospects are becoming too cheap to pass up.

Now what: According to Cantor, Netflix's risk/reward trade-off is rather attractive at this point. "With international expansion firmly in place and profitability achieved ahead of expectations, with the prospects for an imminent launch in France and Germany, and a $1-2 price hike later this quarter across its geos, NFLX has gotten a lot more compelling with several catalysts in tow, in our view," said Squali. "Subscriber growth metrics show that consumers' appetite for the service remains strong even as Netflix's penetration approached a third of all U.S. domestic households." When you couple that upbeat view with Netflix's recently weak stock price -- off about 24% from its early March highs -- it's tough to disagree with Cantor's upgrade.