UBS Says Netflix, Inc. (NFLX) Stock Has 26% Upside

Netflix, Inc. (NASDAQ:NFLX) is wafting up north of 2% Monday morning thanks to an analyst upgrade that has NFLX stock reversing its recent funk.

Source: Via Netflix

UBS analysts upgraded Netflix shares from “neutral” to “buy” on Monday, raising their price target to $175 from $136. The analysts, led by Doug Mitchelson, based their upgrade on better-than-expected improvements to Netflix’s subscriber growth in Europe, Latin America and Japan.

Mitchelson expects most of the growth from the first two aforementioned countries, while modest growth will come from Japan:

“Netflix is certainly well-liked and not inexpensive, but we do see the potential for Netflix to exceed Street subscriber growth expectations and believe that concerns regarding competition and content costs are misplaced. We expect Netflix’s original content ramp to continue to drive accelerating international net additions, especially as [Netflix] increases investment in local content overseas and adds more movies and nonfiction genre content.”

NFLX stock had gained 12.4% for the year through last Friday, mostly on the strength of its fourth-quarter figures, which saw the addition of 7.1 million subscribers and guidance of 5.2 million for Q1.

As with Q4, the company expects most of its additions to come from its international markets, where it grew subs by some 5.12 million in the previous quarter, estimating global growth of 3.7 million in Q2.

Indeed, Netflix isn’t pulling any punches in the international market. The company has lined up some major partnerships in India — including Airtel Digital TV and Vodafone Group Plc (ADR) (NASDAQ:VOD) — which allows Netflix to cultivate an audience even without access to smart televisions or other Netflix-enabled set-top boxes. VOD, for its part, boasts more than 200 million subscribers, and will make Netflix content available in prepaid form.

Then there’s Korea, where the California-based streaming service recently unveiled new original content in the form of Kingdom, billed as a “historical zombie-thriller drama,” its second original Korean show.

While international growth has been and continues to be the key driver of growth for Reed Hasting & Co., UBS also noted the role played by Comcast Corporation (NASDAQ:CMCSA) in reducing churn for the subscription service. For instance, Xfinity X1 users can integrate Netflix into their regular cable experience without having to switch devices.

The NFLX stock upgrade is not without concern, however, as Mitchelson cites the potential of the Republican-controlled Federal Communications Commission to alter the current net neutrality rules in a way that hurts Netflix.

Netflix next reports earnings on April 19, with analysts expecting per-share earnings of 37 cents on revenue of $2.64 billion.

As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.

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