Morning Brief: Morgan Stanley Boosts Price Target on Netflix

Shares of hedge fund favorite Netflix jumped 2.8 percent, to close at $298.07, after several investment banks raised their price targets on the company on Tuesday. One of them was Morgan Stanley, which lifted its target from $275 to $350, citing “increased conviction in Netflix’s ability to drive penetration gains and long-term pricing.” The bank asserted that the streaming video giant is still in its early stages of subscriber penetration. In fact, its bull case, which comes with a $440 price target, assumes global members will double by 2022. Its base case calls for 300 million global subscribers — excluding China — by 2028.

“In 2017, the results support the view that after two years of meager growth at modest penetration levels, Netflix was able to scale in key European markets that did not have a history of high pay-tv penetration or high pay-tv ARPU (average revenue per user),” the bank stated in a report. It pointed to success in France and Germany to suggest southern Europe could see nice growth in 2018. However, Morgan Stanley asserts that the biggest opportunity in the future may be in Asia. At year-end at least 117 hedge funds held a position in the stock, according to data analytics firm Novus. Of these, at least eight included the stock among their top-ten holdings, according to Goldman Sachs. On the other hand, the stock is one of Greenlight Capital’s so-called bubble basket of short bets.

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Elsewhere, Morgan Stanley trimmed its price target for hedge fund favorite Alphabet from $1,200 to $1,175 but maintained its overweight rating, noting it is “tactically cautious” ahead of the Google’s parent’s first-quarter earnings report. The investment bank expects the search giant to miss earnings estimates by 8 percent. Both classes of stock rank among the six largest positions of hedge funds, according to Novus.

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Baupost Group said that as of March 31 it had boosted its stake in Atara Biotherapeutics to 6.25 million shares, or 14.51 percent of the T-cell immunotherapy company developing treatments for patients with cancer, autoimmune, and viral diseases. At year-end the hedge fund firm headed by Seth Klarman held nearly 5.4 million shares.

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In a separate filing, Baupost said that as of March 31 it had liquidated its stake in Cascadian Therapeutics. At year-end, it held more than 8.7 million shares of the development-stage biopharma company.

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Tiger Global Management said in a regulatory filing that as of March 29 it owned 8.4 million shares of Sunrun, or 7.8 percent of the provider of residential solar electricity. It did not hold a position in the stock at year-end.