Stifel Nicolaus Analyst Explains The Reason For Upgrading Netflix, Compares It To HBO

Stifel Nicolaus’ analyst David Levitt upgraded Netflix, Inc. NFLX today to Buy from Hold with a price target of $380. Levitt was on CNBC today to explain the reasons for the upgrade.

"Last quarter, the third quarter the company started to show indications of making a transition where international growth is becoming a bigger contributor to growth and with that, that transition is somewhat tricky because the US business drives more of the profitability of the company,” Devitt said. “Going through and looking at it more recently as the stock has come down to the levels that it hit post third quarter results. I came to my own conclusion that, I have got about 10 to 15p downside if this transition is not yet complete.”

He continued, “ If it is, the stock goes right back to where it was after 3Q, which from here is about a 30p move up and I am playing for like a double over the next two to three years based on what’s happening fundamentally at this company.”

Doesn’t Netflix Looks Like Comcast?

“You could look at it like Comcast, I tend to look at it more like HBO and in our note we do compare it to HBO, which has an implied valuation today of $30 billion in the market as a component of Time Warner,” Levitt said.

“Netflix is about $20 billion market cap, if you think about the comparative growth characteristics of Netflix versus HBO, Netflix can grow at a faster rate, they have a better business model because it’s direct and they can offer better prices to consumers even if HBO chooses to go direct and it’s going to be a bigger subscribers base long-term because of their global aspirations.”