Shares of Netflix (NFLX) are up $7.36, or almost 5%, at $172.16, following an increase in price target by BMO Capital‘s Edward Williams, to $165 from $135, while reiterating a Market Perform rating, a result of Williams’s expectation for higher subscriber growth than previously he’d previously modeled.
Williams has “increased confidence that the company will maintain that position over the next several years” with respect to being the “dominant streaming video service provider.”
Williams doesn’t provide the precise figures for old and new subscriber growth projections; I have a request into his office to obtain those.
Williams raised his 2014 estimate to $4.9 billion and $3.16 per share in profit, versus a prior $4.72 billion and $2.50 per share. That is not far off from the Street consensus of $4.91 billion and $3.03 per share in profit.
Williams also complements the company for last week’s announced senior notes offering:
The expected debt raise was a prudent step, in our view, taking advantage of current low interest rates to refinance existing debt at more attractive rates and to provide increased flexibility as the company continues to invest in international expansions and new content, including originals. We believe the company secured an additional $100 million on top of the planned $400 million for more breathing room as the heavy investments weigh on cash flow � Netflix generated $23 million in operating cash flow in 2012 versus $318 million in 2011.
Williams values the stock on a sum-of-the-parts basis, using a multiple of 26 times forward estimates for the streaming business, and 10 times the DVD business, plus a discount of 25% to reflect the lower value of international streaming subscribers, versus U.S. streaming subs.