Netflix, Inc. (NASDAQ:NFLX)’s recent success in original content have raised the company’s profile and had a positive impact on subscriber churn, but analysts at Morgan Stanley think the significant gap between price and value that existed 12 months ago has mostly closed and they now see a more balanced risk-reward for Netflix, Inc. (NASDAQ:NFLX) shares.

Netflix

Netflix now priced for success:

Analysts believe the fundamental mispricing of Netflix, Inc. (NASDAQ:NFLX) shares that has existed over the past 12 months has fully corrected. At current price levels, it is clear that investors have far greater conviction in Netflix’s ability to meaningfully penetrate the 60-90MM domestic household TAM that CEO Reed Hastings sees. Netflix, Inc. (NASDAQ:NFLX) became available to over 6MM broadband households in the Netherlands this week, but its path to international success is still less clear.

Netflix made Internet television history when it was nominated for 14 Primetime Emmy nominations, led by House of Cards (9), Arrested Development (3), and Hemlock Grove (2). These nominations were the first ever for web-only TV series. HBO’s 108 nominations highlight that Netflix still has a long way to go, but Netflix, Inc. (NASDAQ:NFLX) could make more noise when Emmy winners are announced on Sunday, 9/22.

Virgin Media announced this week that it will run a 40K customer pilot to put Netflix, Inc. (NASDAQ:NFLX) on TiVo boxes, marking the first time Netflix, Inc. (NASDAQ:NFLX) will be offered on operator boxes. The feature is expected to roll out to all of its 1.7MM TiVo subscribers later this year. While this deal itself may only have a small impact on UK subscribers, it could be much more interesting if it catches on with other distributors.

Netflix Stock Valuation:

Morgan Stanley downgrade Netflix, Inc. (NASDAQ:NFLX) shares to EW and remove their price target, but firm’s base case of $314 remains unchanged. Netflix shares currently trade at 42x C2015E EPS, which is roughly in-line with analysts base case target. Analysts arrive at their base case target using DCF methodology using a 12% WACC and 4.5% terminal growth rate.