Are Netflix Analysts Now Getting Too Bullish?

Netflix_Web_LogoNetflix Inc. (NASDAQ: NFLX) has hit a new 52-week high after announcing its earnings and subscriber growth. Make that an all-time high, aided partly by the hint (or forecast) of a coming stock split. Even the more cautious analysts have raised their expectations on Netflix after its news. Now that the stock has hit $546, one has to wonder if analysts are driving Netflix up too much.

24/7 Wall St. is looking at what each analyst report has said about Netflix. The aim is to see if they are behind the curve or if they are getting too far ahead of themselves. Basic data around Netflix’s earnings report and the telegraph of a stock split have been provided ahead of the analyst calls.

Netflix’s first-quarter results were $0.38 in earnings per share (EPS) on $1.4 billion in revenue, compared to Thomson Reuters consensus estimates of $0.69 in EPS and $1.57 billion in revenue. The company gave guidance for the coming quarter of 2015 as $1.47 billion in total revenue and 2.5 million in total net subscriber additions, versus a consensus estimate of $1.66 billion in revenues.

Netflix has highlighted in its preliminary proxy that the media distribution giant was seeking shareholder approval for an increase in the company’s authorized shares. If approved — and you can bet your assets that it will be approved — then the company will recommend a stock split to make its stock more accessible.

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So, what are Wall Street analysts saying about Netflix now after the great news? 24/7 Wall St. has compiled the most positive calls made by firms. Then, to keep some balance, we also showed in more detail what some of the naysayers or more cautious analysts have said. The more positive call summaries are as follows:

  • Janney Capital Markets reiterated its Buy rating with a new Fair Value Estimate of $600, saying that its global momentum supports its Top Pick status.
  • FBR Capital Markets raised Netflix to an Outperform rating from Market Perform, and more than doubled its price target, to $900 from $400. Talk about a new street high target — the prior high target from analysts was $650.
  • Needham reiterated its Buy rating and raised the target price to $600 from $525.
  • Oppenheimer reiterated its Outperform rating and raised its price target to $610 from $484.
  • Citigroup gave a substantial upside target last week, but outlined how Netflix shares could reach $750 over the long haul. The difference here is that the analyst was not making any formal earnings predictions, even though he looks like a genius now.
  • JPMorgan reiterated an Overweight rating and raised its price target to $625 from $525.
  • RBC Capital Markets reiterated its Outperform rating and raised its target to $600 from $550.
  • Pivotal Research reiterated its Buy rating and raised its target to $600 from $550.
  • And Topeka Capital reiterated its Buy rating and increased its price target from $527 to $604.

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As for some of the cautious reports: Credit Suisse maintained its Neutral rating but raised its target price to $505 from $461. The firm said that globalization is marching onward. Other points were made as follows:

Currency headwinds drove a modest shortfall for international streaming revenue versus guidance … was otherwise another well-executed quarter. … We expect investors to look past the below-expectations profit guide for 2Q15 given the greater strategic imperative in global expansion management first articulated on the last earnings call … but we maintain our Neutral rating based on valuation.

Merrill Lynch maintained its Underperform rating but raised its price target to $350 from $300 in the call. The firm also lowered its 2016 GAAP EPS estimate from $4.69 to $3.18 on increased spending for the international expansion. The firm’s investment thesis said:

Netflix developed and is the leader in the subscription DVD rental market. More recently Netflix’s growth has been driven by its streaming service, which allows users to stream titles to their TVs, PCs, or mobile devices instantly. Although Netflix’s story has plenty for both the bulls and bears, our bias is to the bear side due to concerns surrounding the health of the domestic streaming business.

What investors need to consider in whether the analysts are right or wrong in their longer-term views is that the analyst crowd is often very reactionary in this stock. One explanation is that Netflix is so volatile after earnings due to earnings, subscribers, revenues, costs of subscriber additions and many factors making or breaking each quarterly report.

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The reality is that Netflix tends to rise or fall by 10% or more after earnings more often that it does not. Analysts often get too negative on any hiccup in the business. They also often get too positive chasing the company up on good news just ahead of the next negative development. Maybe Netflix is just one of those stocks that is easier to own long term than to trade around ahead of news. Some stocks are that way.

As a reminder, Netflix is one of those companies that 24/7 Wall St. feels should be acquired, but the valuation going ever higher may only block this possibility more and more.

Netflix shares were up 14% at $543.75, on more than 7 million shares traded as of 11:30 Eastern Time, on Thursday. The news 52-week range is $299.50 to $546.79. Needless to say, the consensus price target of $470 will be moving higher once the systems account for the many new higher targets.

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