TSC Ratings' Updates: Netflix

The following ratings changes were generated on Friday, Dec. 26.

We've upgraded Netflix (NFLX Quote), which provides online movie rental subscription services in the United States, from hold to buy. This upgrade is driven by the company's impressive record of earnings per share growth, compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Netflix has improved earnings per share by 43.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Netflix increased its bottom line by earning $0.97 versus $0.71 in the prior year. This year, the market expects an improvement in earnings ($1.28 versus $0.97).

The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Internet & Catalog Retail industry average. The net income increased by 30.2% when compared to the same quarter one year prior, rising from $15.65 million to $20.37 million. ...