Netflix Downgraded at Morgan Stanley - Should We Care?

 |  Includes: AAPL, NFLX
by: Bespoke Investment Group

While Netflix (NASDAQ:NFLX) has been a high flyer similar to Apple (NASDAQ:AAPL) over the past few years, the stock is not loved nearly as much by the analyst community. A total of 55 analysts cover Apple, and 51 of them rate the stock a "Buy." No analyst has a "Sell" rating on Apple. On the other hand, 31 analysts cover Netflix, and just 10 of them have a "Buy" rating on the stock. Sixteen analysts rate it neutral, while five rate it a "Sell."

Even though the analyst community isn't gaga over Netflix, today was the first time in recent months that we can remember a major sell-side firm downgrading the stock. Morgan Stanley was today's culprit - downgrading NFLX from Overweight to Equalweight. The question now is should we care? While an analyst rating may make headlines, it really means nothing until you look at the analyst's historical calls on the stock. In that regard, below we take a look at Morgan Stanley's historical calls on NFLX.

The current Morgan Stanley analyst issued coverage of NFLX on August 20th, 2009, with an Overweight (Buy) rating. From that point through March 12th, 2010, the stock went up 58%. On March 12th, the analyst downgraded the stock from Overweight to Equalweight and remained at Equalweight through July 30th, 2010. During that period, NFLX went up an additional 38%. Then on July 30th (which ended up being a multi-month low for the stock), the analyst decided to upgrade the stock back to Overweight. From that point through yesterday, the stock climbed 153%. While it would have been better to keep the Overweight rating on the stock for the entire time period, the Morgan Stanley analyst seems to be doing a respectable job covering Netflix. (At least a much better job than this analyst that we highlighted the other day.)

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