Two research firms have made bullish calls on Netflix (NFLX) this week, with KeyBanc today asserting that the stock has reached an attractive entry point and Stifel yesterday writing that fears about the streaming video service provider are overblown.
ATTRACTIVE ENTRY POINT: At current levels, Netflix's stock reflects below consensus Q2 domestic subscriptions and a deceleration in international subscriber growth, according to KeyBanc analyst Andy Hargreaves. However, there is no evidence to suggest that domestic subscriptions have slowed meaningfully and international subscription growth should accelerate next quarter, Hargreaves contends. Second quarter international subscriber trends were negatively impacted by seasonality and increased churn following the company's expansion to new markets in Q1, Hargreaves believes. Moreover, the current consensus estimate of 13M overseas net adds for 2016 assumes that the foreign markets which Netflix entered before 2016 will grow at record low rates, the analyst stated. Estimating that Netflix's U.S. business alone is worth $80 per share, the analyst kept a $130 price target and Overweight rating on the stock.
FEARS OVERBLOWN: In a note with the headline "Reports of Netflix's Demise Have Been Greatly Exaggerated," Stifel's Scott Devitt contended that worries about the company's competition are overdone. Netflix is on track to release several times more original programming hours than either Amazon (AMZN) or Hulu - which is jointly owned by Disney (DIS), Fox (FOXA) and Comcast (CMCSA) - this year, the analyst reported. Additionally there is a great deal of overlap in the services' subscriber bases, so there should be multiple winners in the sector, Devitt believes. Furthermore, the analyst thinks that Netflix's spending on original content should grow much more slowly in percentage terms in coming years than it has over the past two years, stating that investors could be overestimating how much the company will spend on original content over the long-term. He kept a $143 price target and Buy rating on the shares.
WHAT'S NOTABLE: Research firm Bernstein has a much less upbeat view of Netflix. On June 22, the firm estimated that Netflix's total potential U.S. subscriber base is only 80M. Consequently, in order to meet the long-term consensus estimate of 65M-70M domestic subscribers, it would have to capture 90% of the potential market and keep its churn below 1%, Bernstein estimated. Calling this scenario unlikely, the firm kept a $62 price target and Underperform rating on the shares.
PRICE ACTION: In early trading, Netflix rose 2.8% to $90.40 per share.
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