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Since the start of the pandemic, Netflix’s subscription numbers have grown as consumers have shifted away from watching cable television. Their success in the past six months is visible in the stock price, which has risen from ~$300 in the middle of March to today’s price of ~$492 (the price at the time this article was written). KeyBanc Capital Markets believes that Netflix still has room for growth post-pandemic, initiating it at an Overweight rating with a price target of $590.

The first catalyst identified in the analyst reports that lends KeyBanc to initiate Netflix’s at Overweight is the potential increase in subscription prices across geographical regions. Arguably, Netflix hosts the best content among any streaming platform and is priced lower than many of its digital TV streaming competitors. KeyBanc believes that as more content is added, Netflix will have room to increase its subscription prices which will lead to a rise in its stock price.

Netflix’s 2Q20 performance was another reason that convinced KeyBanc to initiate with a $590 price target. Netflix operated at a free cash flow (FCF) loss, burning between $1.96 - $3.14 billion annually, for the past 3 years. However, during this quarter, not only did the FCF margin expand by 15%, but Netflix’s amortization to cash content expense lowered to a ratio of 1:1. As Netflix slows expansion efforts and transitions toward maintaining its platform, KeyBanc expects the FCF margin to continue to grow resulting in future share price growth.

The analyst report on Netflix also briefly mentioned the importance of original content. Since 2015, Netflix’s original content has grown from 5% to 42% as they do not want to rely on receiving products through licenses with media companies. Along with more original content across genres, Netflix will be looking to add depth to their current genres which will drive user engagement and their stock price even higher.

Despite KeyBanc having a bullish outlook for Netflix, there are some risks associated with the stock. The foundation for the bearish argument on Netflix is that if consumers have not joined during the pandemic, it is highly unlikely for them to do so after. More importantly, Netflix is currently facing backlash for the release of its new movie "Cuties" which could affect the company in the long-term.

It will be interesting to see how Netflix handles their critics’ calls for them to be ‘canceled’ especially with KeyBanc identifying significant areas of upside for the company.

Disclosure: At the time of publication, we have no positions in any of the securities mentioned in this article. We wrote this article ourselves, and it expresses our own opinions. We are not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.