Netflix Analysts Raise Stock Price Targets, See Little Upside After Earnings Report, Gains
Netflix's stock rose in Monday after-hours after the streaming video company's latest earnings and subscriber report. But as the company's shares have continued to set all-time highs, Wall Street observers on Tuesday once again discussed their outlook.
And many analysts remain "neutral" on the stock. Ahead of Monday's earnings report, 23 of 35 analysts covering the stock had a “hold” rating on it, while six suggested that investors “buy” it, and six had a “sell” or equivalent recommendation.
Evercore Partners analyst Alan Gould raised his rating on the stock from "underweight" to "equal-weight," equivalent to other analysts' "neutral" rating, and raised his price target from $150 to $350.
"Netflix's competitive position continues to improve," he wrote in a report. "Our underlying thesis has been that competition would prevent uneconomic profits and that the content companies would ensure competition. However, the prospect of meaningful competitors appears to be further away than we had anticipated."
He argued that in the meantime, the company was ensuring "a stronger competitive position that will be harder for others to overtake."
Gould referenced the difficulties of stock calls at the current highs though. "While we are loathe raising our rating with the stock at an all-time high, the facts have changed, and we have now had to raise our estimates for three consecutive quarters," he wrote. "The stock continues to be considered one of the most expensive companies relative to sell-side target prices or buy-side sentiment surveys, so there remains plenty of skepticism."
But given the latest set of results, "we now think it is as likely that the stock can continue increasing as decreasing despite its lofty valuation," Gould concluded.
Chiming in on recent news that Netflix was in talks with cable operators to offer its video service via set-top-boxes, Gould said: "We are not anticipating Netflix will be enabled on domestic cable set-top boxes in the near term."
Similarly, Cowen & Co. John Blackledge on Tuesday maintained his "market perform" rating, also equivalent to a "neutral," on Netflix's stock, but raised his price target from $191 to $333.
"We have updated our sub forecast and now estimate U.S. streaming subs rise from 33 million in 2013 to 50 million in 2018 (versus 45 million prior), though net adds still decelerate," he wrote. "We now forecast international streaming subs rise from 10.5 million in 2013 to 25.5 million in 2018 (versus 19.5 million prior), given recent strength and expectation of further market entry in 2014 and beyond."
Credit Suisse analyst Stephen Ju also kept his "neutral" rating, but increased his target price from $236 to $344.
"We have maintained our "neutral" rating primarily on valuation, even as we make what we feel are aggressive subscriber addition in tandem with content acquisition cost moderation," he explained.
Wedbush Securities analyst Michael Pachter remains one of the more bearish Netflix observers on Wall Street.
Reiterating his "underperform" rating on Tuesday, he said the third-quarter earnings upside surprise and bullish earnings guidance "suggest [a] positive outlook, but content (cost, quality) and earnings per share questions remain." He raised his price target to $160.
Addressing an accounting change, Pachter said: "We expect original content...expenses to catch up to front-loaded cash use. In the past five quarters, Netflix has had negative free cash flow of $93 million, compared to positive pro-forma net income of $80 million, with a further gap expected in the fourth quarter."
He added: "We believe the discrepancy was generated by originals with useful lives of two years and expect the difference to reverse over the next two fiscal years, placing a drag on earnings per share of roughly $1.50 per share each year. We think that consensus estimates for Netflix's earnings per share potential are overstated."
But Janney Capital Markets analyst Tony Wible reiterated his "buy" rating on Netflix's stock and raised his fair value estimate on it to $450. "The company continued to scale its operations at a rapid pace despite a move to more conservative accounting treatments and international profitability on the horizon, barring new market entries," he wrote in a report. "Lastly, the company looks like it is funding growth through accounts payable again, reducing risk of any capital raise."