Netflix, Inc. (NASDAQ:NFLX) has received an upgrade and price target increase from analysts at Baird. They believe upside from international opportunities is underappreciated by investors and cite a number of other drivers for their upgrade.


Netflix upgraded from Neutral

Baird analysts William V. Power, Steven J. Beckert and Andrew T. Flis initiated coverage of Netflix, Inc. (NASDAQ:NFLX) with a Neutral rating in August. They upgraded the company to Outperform and raised their target price to $420 per share in spite of the recent upward move of the company’s shares. The analysts said they’re now “more comfortable” with the risk and opportunities for growth at Netflix and believe that much of the key in Netflix’s success is in original content, which offers “sustainable differentiation.’

They believe a pullback in Netflix shares is less likely in the near term and now recommend the shares even at their current levels.

Baird sees several upgrade drivers for Netflix

The analysts named six key drivers for their upgrade of Netflix, Inc. (NASDAQ:NFLX). First, they note that there’s strong secular growth and say we’re still “in the early innings” of a shift over to streaming video. Second, they see opportunities for earnings per share upside, particularly as international dilution improves. In 2015 and beyond, they believe Netflix’s earnings per share will significantly accelerate.

Third, they see major scale advantages for Netflix, pointing to the company’s 29.9 million U.S. streaming subscribers and 38 million global subscribers. They say “significant content and technology scale advantages” have given Netflix a leg up on the competition. Fourth, they expect the fourth quarter to be seasonally strong. They expect U.S. paid net adds to hit 1.7 million and international paid net adds to hit 1.3 million during the December quarter.

Fifth, they believe Netflix, Inc. (NASDAQ:NFLX)’s increasing original content “provides the foundation for long-term staying power” because it differentiates the company from competitors. And finally, they raised their international forecasts, increasing their expectations for 2015 international net ads from 4.6 million to 7 million because of the assumption that Netflix, Inc. (NASDAQ:NFLX) will continue to launch in new markets. They note that global broadband penetration is expected to hit 20% or more by 2017, while U.S. broadband penetration hits 50%.

More opportunities for Netflix

The Baird analysts also point to opportunities for Netflix in the set-top box industry. They don’t believe the company will get its services added to cable boxes in the near term, but they note that Netflix would benefit by enhancing its accessibility and addressable market.

As of this writing, shares of Netflix, Inc. (NASDAQ:NFLX) were up more than 1%.