Netflix (NASDAQ:NFLX) shares jumped more than 3% Monday after Morgan Stanley raised its price target for the stock to $550 from $475 per share.
NFLX shares are trading around the $488 mark at the time of writing.
Analysts at the investment bank cited the Overweight-rated company's "attractive risk/reward," its increased confidence in Netflix's return on content spending, execution on growth initiatives, including paid sharing and advertising, and the pull-back in competitive intensity in broader Media.
Morgan Stanley also noted that Netflix has begun hedging currency, which it expects will lift earnings, although they note that the impact of FX moves will be delayed in reported results.
"We continue to see NFLX shares as offering an attractive risk/reward as we raise our estimates and PT to $550, which implies shares trade at 26x our 2025E EPS, as we continue to forecast a 25-30% EPS CAGR over the next four years," said the investment bank.
"Our earnings outlook has increased on the stronger USD since our October upgrade. There is a high 70-80% flow-through of FX moves to EBIT given the cost base of Netflix," they added.
Furthermore, Morgan Stanley said it is raising its net adds forecast for Netflix "modestly" in 2024 and beyond, as they see the combined benefits of original programming strength and competitive withdrawal benefiting member growth at Netflix.
The investment bank believes Netflix's "unmatched scale" and FCF generation opens up new opportunities for the business, noting that the streaming giant is two years into its gaming investments and "the benefits of these investments have yet to be material but offer upside in the future." At the same time, the company is also "increasingly able to optimize its content spending with new options around licensing."