When New Street-High Targets Are Offered on Netflix (NFLX)

When can one adequately call a top in a company like Netflix, Inc. (NASDAQ: NFLX)?  The answer is simultaneously “never” and “any time.” When momentum investing (and day trading) works, it works very well. This morning came a call from Bank of America Merrill Lynch that now looks to be a street high, or very close to a street high.

The entertainment research team at the firm reiterated its “Buy” rating on Netflix this morning, and lifted its price target objective to $325.00. Part of the reasoning behind the price target hike is data from comScore April and May showing growth, as well as accelerated trends showing robust subscriber growth.

BofA also noted that it is raising its subscriber estimate to the top end of the 24.0 to 24.8 million range, and that it now sees revenues of $796 million. It also sees $0.07 higher in earnings per share in 2011.

The most recent momentum may have continued with Netflix announcing in recent days that it is entering 43 new Latin American markets. The analyst team expects only lumpy additions from those markets as income in those markets is much lower.

What matters more than any of these short-term targets is longer-term objectives. The firm released 2013 estimates of $9.27 EPS and $5.8 billion in revenues. If BofA turns out to be correct, investors are paying almost 32-times 2013 earnings and paying almost 2.7 times 2013 revenues.

Whether or not you choose to follow BofA/Merrill Lynch’s call is up to you. Shares are currently up more than 1% around $295.00 after hitting an all-time high of $297.35 earlier in the trading day.

Since Reed Hastings joined the board of directors at Facebook the new belief is that Facebook is now 100% opportunity for Netflix rather than 100% threat.

Investors need to know one other thing: almost all analysts and market pundits alike have been playing catch-up on Netflix. To prove that, the consensus price target from the analyst poll at Thomson Reuters is just under $250.00. The only ones who got Netflix right were the momentum traders who kept buying this one. When that stops is anyone’s guess.

For whatever it is worth, Merriman Capital just downgraded Netflix to a “Neutral” on Wednesday.

JON C. OGG