This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Netflix's Outlook Improves After Friending Facebook

Stocks in this article: NFLXAAPLGOOGCMCSAVZT

By Jake Lynch

BOSTON ( TheStreet) -- Perennial momentum stock Netflix (NFLX) has gone from overvalued to illogically overvalued in recent weeks, though it's down about 3% from its recent 52-week high.

The fast-growth DVD-mailer and streaming video company, led by tech guru Reed Hastings, is scheduled to report its second-quarter results on Monday. Analysts forecast that Netflix increased quarterly adjusted earnings by 40% to $1.12 and sales by 52% to $790 million.

Expectations are lofty for the fast-growth firm, which beat earnings expectations by 3.7% last quarter, a solid outperformance, but suffered a stock price drop of more than 9%, in reaction. On the whole, analysts have tempered their view of Netflix's equity, which has advanced 55% in 2011, 163% in 12 months and 1,084% in the past five years.

Currently, 13, or 41%, of the researchers covering Netflix rank its stock "buy" while 12 rate it "hold" and seven rate it "sell." Interestingly, many of Wall Street's brand-name investment banks are still bullish.

JPMorgan, recently named the best overall equity researcher based on buy-side clients' perceptions, by surveyor Greenwich Associates, has an "overweight" ranking and lofty $340 target on Netflix. Goldman Sachs expects Netflix to hit $330 and Barclays predicts a rise to $315.

Earlier in the year, Netflix was sold short by vocal long-short hedge fund manager Whitney Tilson, who eventually sold out of his losing position. While Tilson conceded that Netflix has an outstanding business model, his thesis was predicated upon overvaluation, a relevant criticism of a stock that currently costs 44 times forward earnings and 48 times cash flow, enormous market premiums.

Tilson made other salient points about Netflix, especially its previously low-cost streaming contracts, which are unlikely to be renewed, as proven in contract renegotiations.

Goldman turned decidedly bullish on Netflix in April when it downgraded its view of the streaming competition posed by the likes of Google (GOOG), Amazon (AMZN) and Apple (AAPL). JPMorgan is similarly unimpressed with competitive threats, especially now that Netflix has inked a partnership with privately-held Facebook. JPMorgan sees tremendous growth, domestically, still, given that Netflix's "current penetration is ~30% of broadband subscribers." That figure has plenty of upside.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,190.47 +216.16 1.27%
S&P 500 0.00 -2.75 -0.14%
NASDAQ 4,564.9790 +15.7530 0.35%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs