Analyst: Subscriber Growth Can Boost Netflix Stock Another 20%

Morgan Stanley set a $350 price target on Netflix

Apr 10, 2018 at 10:10 AM
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Shares of Netflix, Inc. (NASDAQ:NFLX) have jumped 2.2% out of the gate to trade at $296.24, after several analysts issued bull notes on the FAANG stock. While Evercore ISI boosted its NFLX price target to $250 from $220, Raymond James lifted its target price to $330 from $290 -- in line with the security's March 12 record high of $333.98.

The most optimistic outlook came from Morgan Stanley, though. The brokerage firm raised its price target for Netflix by $75 to $350 -- saying it expects first-quarter subscriber growth to be higher than anticipated, and that the streaming service is in the early stages of global growth.

Today's pop helps extend a recent bounce in the $275-$280 region, which is home to a 38.2% Fibonacci retracement of the stock's rally from its early December lows to its mid-March peak, as well as its rising 60-day moving average. However, the round $300 level has served as a ceiling over the past few days. This coincides with peak put and call open interest in the standard April series, suggesting NFLX could get pinned to this strike as front-month options expiration approaches over the next two weeks.

The April 300 call has a roughly 4,700-contract lead over the put, mirroring a call-skewed trend seen at the major options exchanges. Drilling down on the past two weeks' worth of options activity shows speculative players at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more calls than puts, based on Netflix's 10-day call/put volume ratio of 1.71, in the 93rd percentile of its annual range.

And amid recent tech sector headwinds, NFLX call options are pricing in remarkably low volatility expectations compared to their put counterparts. The stock's 30-day implied volatility skew of 10.2% ranks in the 89th annual percentile.


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