Netflix will gain another 24% from current levels amid 'structural' advantages in the streaming space, Argus Research says

• Shares of Netflix jumped as much as 4% on Tuesday after Argus Research upgraded the streaming service to "Buy" from "Hold."
• Argus believes Netflix will benefit from "structural competitive advantages" as the firm works to become free cash flow-positive.
• The firm assigned a $650 price target to Netflix, representing potential upside of 24% from Monday's close.
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Netflix spiked as much as 4% on Tuesday after the streaming company received an upgrade from Argus Research to "Buy" from "Hold" and a price target of $650, representing potential upside of 24% from Monday's close.

Argus believes Netflix will benefit from "structural competitive advantages" like being a first mover as it works to become sustainably free cash flow positive in the near future, according to the note. Netflix's financial goals of buying back stock and becoming more financially lean "may provide a catalyst for Netflix shares," Argus said.

And while Netflix still trades at a premium relative to its peers, the company's valuation has improved given the recent sell-off in large cap technology stocks, which provides investors with an "appropriate entry point," the note said.

One lever Netflix can pull to further monetize its user base is cracking down on password sharing, which various estimates suggest encapsulates anywhere from 25% to 70% of Netflix's entire global subscriber base of 203 million members, according to Argus.

"Getting those who share account logins who are not members of the same household to sign up for new accounts would boost subscribers and revenue," Argus explained.

The biggest risk Netflix shareholders face is a pull forward of demand form the COVID-19 pandemic, which will result in tough year-over-year comparables and could lead to increased churn as the virus subsides and people spend less time at home. Increased competition from Disney+ and new entrants also poses a risk to the company, Argus noted.

But Argus believes the subscribers Netflix gained in 2020 "will stick with the service after the pandemic recedes," adding confidence to its buy rating.