28% Upside And Chill? Wells Fargo Expects Netflix To Outperform

Analysts at Wells Fargo see plenty of reasons for investors to be bullish on Netflix, Inc. NFLX. The firm's Ken Sena initiated coverage of Netflix's stock with an Outperform rating and $230 price target.

Netflix is not only an industry leader in the online video streaming segment but management knows how to improve its business and expand its dominance, Sena commented in his initiation note. Specifically, the company is improving the quality of its platform through compelling content, a better interface, but more importantly, a better understanding of what its users want to watch. As such, it will be incrementally more difficult for Netflix's rivals to "catch competitively."

But aside from these improvements at the business level, Netflix will likely be a major beneficiary of higher broadband penetration rates throughout the world, Sena continued. Granted, Netflix will have to oversee elevated levels of content spend to, the company's data-driven approach to its content and subscriber experiences will prove to be a major advantage.

Meanwhile, investor concerns that Netflix will soon be competing with Facebook Inc FB and Alphabet Inc GOOG GOOGL may be overblown, the analyst suggested. While these two companies are indeed competing in the online streaming video space the companies appear to be focusing only on shorter-form videos — at least for now.

Finally, the analyst's $230 price target is based on a sum-of-the-parts valuation in which the domestic business is valued at $80 per share (assigning a 23x multiple) to a $5 per share domestic streaming EPS estimate in 2023. Assuming that the international business will reach a similar value per user at the same time, the segment would be worth $150 per share.

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