Netflix (NFLX) is suddenly one of the Valley’s hottest companies, as the DVD-by-mail company gradually morphs into everyone’s favorite streaming movie service. The service is showing up everyplace: on TiVo boxes, on the Web, on Xbox Live, in Blu-Ray disk players. The company reported blowout Q4 earnings earlier this week and provided a strong Q1 outlook. Netflix has become a hot counter-cyclical, nesting-in-the-living room recession play; the stock has doubled since late November.

Stifel Nicolaus analyst Scott Devitt thinks the rally has gotten a bit out of hand; he downgraded the shares this morning to Sell from Hold, asserting that fair value is about $28, or well below the current level.

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Goodbye, theater tickets. Hello, movie rentals.

Stifel Nicolaus analyst Scott Devitt this morning upped his rating on Netflix (NFLX) to Buy from Hold, setting a $25 target price. Devitt notes that the stock is off 40 percent since late September, a period in which the S&P 500 is off 25 percent.

“In the current economy,” he writes, “Netflix’s value-oriented offering stands out to us as a compelling alternative to more expensive entertainment alternatives.” Devitt notes that the average Netflix customer paid a base of $13.60 a month–$163.20 a year–for two-at-a-time unlimited DVD rentals. By contrast, he notes that a night at a “Ticketmaster event” for a family of four on average runs $240. Take a family of four to the movies and ply them popcorn and soda, and you’ll pay $70. “Due to its relative value, we believe the Netflix existing subscriber base may remain more stable in the downturn and new subscribers could improve once the initial shock of the past few months subsides.”

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Stifel Nicolaus analyst Scott Devitt this morning cut his rating on Overstock.com (OSTK) to Sell from Hold. He notes that the company, which reported second-quarter financial results this morning, trades for 21×2009 EBITA, “the highest multiple in the sector.”

Devitt says the company has had two consecutive quarters of mid-20 percent growth, but that it has had “fairly easy comps,” and that growth could drop into the low-to-mid teens by 2009. “Investors believe that Overstock is doing well for the same reasons TJ Maxx is doing well, but Overstock transitioned away from the excess market two years ago and sells more traditional retail merchandise in its current form,” he writes.

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Is Microsoft (MSFT) interested in taking a stake in eBay’s (EBAY) PayPal and Skype units?

Stifel Nicolaus analyst Scott Devitt asserts in a research note this morning that he has “thought it possible for Microsoft to attain an equity ownership interest in PayPal/Skype.” He notes that display ads for Microsoft’s program for providing cash back to consumers who make purchases through MSN have shown up on eBay, and that all of eBay’s fixed price items qualify for the program. He also notes that the cash-back program offers PayPal deposit of refunds.

Manwhile, Devitt this morning upped his rating on eBay to Buy from Hold; he maintains his $35 price target on the stock.

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Earlier this week, the hedge fund manager William Ackman of Pershing Square Capital Management floated the idea that the book retailer Borders Group (BGP) should consider selling itself to Amazon.com (AMZN). That would be certainly be a good thing for Ackman, since Pershing Square owns about 30% of Borders. He compared the concept of Amazon-owned retailer stores to Apple’s successful move into bricks-and-mortar retailing.

But for a variety of reasons, this seems like a long shot idea. Scott Devitt, an analyst at Stifel Nicolaus, says bluntly, “not a chance.”

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