Shares of Netflix (NFLX - Get Report) are sliding after Jefferies analyst John Janedis downgraded the stock to Underperform, a sell-equivalent rating, citing growth concerns, particularly in the U.S. This is the second downgrade in as many days, following yesterday's rating cut by Needham analyst Laura Martin on similar growth concerns regarding the company's international subscribers. Nonetheless, this mornings bearish move has not been enough to shed yesterday's gains after a news report stating that Netflix will be incorporated into Comcast's (CMCSA - Get Report) ; (CMCSK) X1 platform.
GROWTH CONCERNS: In a research note to investors this morning, Jefferies' Janedis downgraded Netflix to Underperform from Hold after assuming coverage of the name, and lowered his price target on the shares to $80 from $120. While the analyst believes the company's runway will span multiple years, he said his research indicates that Netflix's domestic subscriber growth trajectory "may be somewhat flatter" than the market's current expectations. Additionally, Janedis acknowledged that while international opportunity is large, he believes that international growth will be more challenging than expected in the near-term, making growth non-linear. Yesterday, Needham's Martin had also downgraded Netflix, cutting the stock rating to Hold from Buy. The analyst believes the recent Brexit vote adds risk that decelerating U.K. and EU GDP growth will slow the company's subscriber growth or accelerate its churn rates. The analyst also pointed out the negative currency translation risks and the EU legal changes proposed in May that would force Netflix to fund European-made films, which could bring higher costs.
COMCAST DEAL BENEFITS: Conversely, Bank of America Merrill Lynch analyst Nat Schindler remains bullish on Netflix following the reported deal with Comcast, reiterating a Buy rating and $146 price target on the stock. The analyst noted that Comcast is the first major U.S. cable provider to allow Netflix onto their core set top box platform, which he sees as bringing several benefits to the streaming company such as expanded household reach, potential integration into monthly cable bills, and stronger positioning for future partnerships with other Pay-TV providers. Also positive on the agreement was Pacific Crest analyst Andy Hargreaves, who believes the deal should reduce consumer friction and help support higher usage and subscription levels. Additionally, Hargreaves expects the agreement to improve Comcast's competitive position and increase demand for its higher broadband offerings. He reiterated a $130 price target on Netflix's stock and a $65 price target on Comcast's shares. Pacific Crest has an Overweight rating on both stocks.
PRICE ACTION: In morning trading, shares of Netflix have dropped about 3.5% to $94.55.
Reporting by Jessica de Sa-Mota.
Exclusive Look Inside:
You see Jim Cramer on TV. Now, see where he invests his money and why Comcast is a core holding of his multi-million dollar portfolio.
Want to be alerted before Jim Cramer buys or sells CMCSA? Learn more now.