Oppenheimer believes that the recent sell-off in high-beta Internet and technology stocks has created a buying opportunity in certain stocks in its coverage universe. Near-term fundamentals are believed to be unchanged. Therefore, both Netflix and Yelp were raised to Outperform from Perform.
Oppenheimer’s Netflix target of $419 suggests 24% upside, based on 20 times 2018 non-GAAP earnings, which are discounted 10% annually to 2015. The team also called Yelp’s headline risk mostly “noise.” Yelp’s price target of $78 suggests 19% upside. That was based on 15 times 2018 expected EBITDA and discounted 13% annually to 2015. This implies that Yelp will trade at 11 times 2015 expected revenue.
The upgrade said:
Near-term fundamentals unchanged, in our view. Recent headlines related to Netflix include Amazon set-top box launch, with unfounded speculation of Amazon launching a free video service. Yelp headlines relate to FTC investigation of businesses that claim false or fraudulent reviews causing damage (YELP refuses to release consumer information, in most cases). We think the Amazon set-top box will actually be a positive for Netflix, as a featured application.
Read Also: Could Netflix Stock Drop Tempt Apple Into Buying Netflix?
Two additional key takeaways are 1) that both stocks sitting on support levels — chart pattern suggests a near-term bounce if market stabilizes — and 2) the risk/reward levels are now attractive as the stock is 35% below 52-week highs.
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