Is Oppenheimer Right About Netflix?

The sector rotation out of tech is creating some tempting buying opportunities, and at least one analyst thinks that one recently rebuffed market darling is ready to bounce back. Oppenheimer is upgrading shares of Netflix (NASDAQ: NFLX  ) this morning -- from perform to outperform -- arguing that the recent sell-off is overdone.

It has certainly been a swift and brutal turn for the leading video service. The stock has closed lower in 19 of the past 22 trading days since peaking at $458 a month ago. It has gone on to shed 26% of its value in that time. It's telling that Oppenheimer's 12-month price target of $419 may have been a bearish call several weeks ago, but now it represents a respectable 24% return from where it closed on Friday.

The sharp correction in Netflix shares wasn't triggered by any particular negative catalyst. Even last week's debut of Amazon.com's (NASDAQ: AMZN  ) Fire TV -- the leading online retailer's $99 set-top media player that favors streaming through Amazon's own digital ecosystem over Netflix and other platforms -- can't really be considered a reason for Netflix investors to worry. Amazon's stock closed lower in each of the three trading days since it introduced Fire TV last Wednesday.

This doesn't mean that Netflix is going to bounce back to $458, naturally. The slide over the past four weeks may have been unwarranted, but bears can argue the same thing about the bullish rally that made Netflix the best-performing S&P 500 component for all of last year.

Netflix rocks. It closed out 2013 with 44 million global streaming subscribers. If the guidance it issued earlier this year is on the mark, we should be looking at 48 million online accounts when Netflix reports its results for the first quarter two weeks from today.

It should be a solid report. Analysts see earnings skyrocketing to $0.82 a share, making this Netflix's most profitable quarter in years. Revenue is expected to climb 24% to nearly $1.3 billion If those goals seem ambitious, keep in mind that Netflix has blasted through Wall Street's profit targets with ease for three consecutive quarters.

Bears argue that competition is coming for Netflix, but no one outside of perhaps Amazon and, to a much lesser extent, Redbox, have come out with a cheap stand-alone streaming service with a digital catalog worth paying up for. Netflix investors should keep an eye on the success of Fire TV despite the lukewarm market reaction. Reviews have been generally positive outside of Amazon's decision to price its gadget at the high end of the existing range of set-top devices.

However, even if Fire TV succeeds, it will be just more validation for the Web-served video content revolution that Netflix has been leading for years. Time will tell if Oppenheimer was perfectly opportunistic with this morning's call or if it was too early, but Netflix's long-term direction remains bullish.

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