Netflix Analyst Adds Stock to "Best Ideas" List

On Tuesday, Guggenheim Securities analyst Michael Morris added Netflix's stock to his company's [...]

By Hunter Miller

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On Tuesday, Guggenheim Securities analyst Michael Morris added Netflix's stock to his company's list of "best ideas" while predicting that the focus of the investor would "return to value proposition pricing and power."

"We are adding Netflix to our best ideas list and maintaining our price target of $150, representing 55 percent upside to the July 1 closing price of $96.67," Morris wrote in his company report. "We believe that consensus investor expectations under-appreciate the long-term domestic opportunity that is presented by an industry-low hourly consumption cost to the consumer. We expect Netflix to continue to take usage share from traditional linear networks and as such see the company having greater potential for future domestic price increases than current consensus expectation imply."

While there has been recent outrage about issues such as the price hike of monthly subscription fees and the increasing level of competition, Morris highlighted that people often "fail to see the magnitude of the relative value proposition Netflix provides to the consumer when compared to the cost of traditional television."

With the exception of the Fox broadcast network, Netflix generated less revenue per average hour of content consumed than any other provider in 2015, according to the Hollywood Reporter. Morris mentioned, "We believe a gradual convergence of Netflix revenue per hour consumed to an industry-average level is a realistic long-term parameter assuming that over time, economics and utility align." He continued stating, "While we expect the process to take more than two years, we note that were Netflix to achieve a domestic average broadcast revenue per streamed hour level of 21 cents in 2018 (72 percent above our currently forecasted rate), total domestic revenue would be $11.9 billion, almost $5 billion ahead of our current estimate."

Considering Netflix is spending $6 billion in content spending in 2016, and with the effective price increases, Morris believes that these decisions will "bring investor interest back to the Netflix story."

Netflix's stock has been traded between $79.95 and $133.27 over the course of the past year.

Would you invest in Netflix stock at this point given the recent price increase for customers?

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