Shares of streaming-video leader Netflix rose Tuesday as an analyst upgraded the stock in the hours leading up to its next release of quarterly financial results, due after the market’s close.
Netflix stock (NFLX), up more than 30% in 2019, was up 1.8% to $355.11, while the S&P 500 was near flat. Deutsche Bank ’s Bryan Kraft boosted his rating on the shares to Buy from Neutral.
Kraft also lifted his price target by $40 to $400, a bit below FactSet’s current average of near $401. He cited valuation among his reasons, noting that the company is trading at a lower ratio of enterprise value to estimated 2019 revenue than it did when he downgraded the stock last year.
“Netflix is looking more and more like a platform every day, rather than just an application,” Kraft wrote. “Platform status brings network effects not available to peers and competitors. Specifically, this is making Netflix even more of a go-to destination when consumers want to watch something, and it means having Netflix is becoming more of a cultural necessity for people around the world.”
Kraft thinks Wall Street’s consensus estimates for paid subscriber growth in 2019 and 2020 are conservative. His estimate for international growth, the source of most of Netflix’s new paid subscribers, for those two years combined is 54.9 million, about 11% above the consensus.
The company, whose stock is up about 15% over the last 12 months, is scheduled to report first-quarter financial results this evening. Barron’s has a rundown of some key data points. As we have reported:
Wall Street analysts are looking for quarterly earnings of 58 cents per share using standard accounting methods, or non-GAAP earnings of 69 cents per share, according to FactSet, on revenue of $4.5 billion.
Analysts are looking for global paid streaming subscriber additions of 8.96 million, according to FactSet, on domestic additions of 1.6 million and international additions of 7.3 million.
The results are due as investors have come to learn more about the aims of some key competitors. Walt Disney stock (DIS) rose last week as it announced details of its planned streaming offering, while Apple (AAPL) recently unveiled details about Apple TV+.
Meanwhile, AT&T (T) sold its stake in Hulu back to the joint venture that owns the service in a deal valuing the business at $15 billion. (Nicholas Jasinski reported that story for Barron’s on Monday.) Kraft sees Hulu as a potentially important Netflix competitor in foreign markets
But he nevertheless thinks worries about competition for Netflix are exaggerated.
“Disney+ and Netflix do have some limited overlap, but Netflix is a much broader service…[The] idea that consumers will choose Disney+ over Netflix seems unrealistic, unless a given consumer’s use case for having Netflix has been limited to watching Disney films.”
Netflix Inc. shares were trading at $356.57 per share on Tuesday morning, up $7.70 (+2.21%). Year-to-date, NFLX has gained 33.22%, versus a 16.69% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of MarketWatch.