Shares of Netflix (NFLX 0.72%) moved sharply higher at Thursday's open after the streaming pioneer posted better-than-expected financial results, and you wouldn't expect that given the handful of analysts lowering their price targets in response to the otherwise well-received report. Thankfully for those long the stock, there is more to this than meets the eye.
Netflix has become the poster child for headline risk. Whenever a new service launches with aggressive pricing or a discounted prepaid plan that's locking viewers in place for a chunk of time, Netflix stock seems to suffer. When a rival platform outbids Netflix for content or pulls an iconic show from its catalog -- I'm looking at you, The Office and Friends -- the shares retreat. Several Wall Street pros slashing their price targets on Netflix stock between Wednesday night and Thursday morning may seem problematic, but sometimes the headline risk buries the lead.
Some steps down are actually steps up
Analysts have been updating their notes on Netflix after this week's report, and some of them seem to be going the wrong way with their price targets despite the seemingly encouraging financial update.
- Jason Helfstein at Oppenheimer is lowering his price goal from $410 to $385.
- Bernstein analyst Todd Juenger is taking his Netflix target of $450 down to $422.
- John Blackledge at Cowen was perched at $435 heading into the report. He's now at $415.
- Guggenheim's Michael Morris cut his price target to $400 from $420.
With at least four analysts whittling down their near-term goals for the stock price, it may seem like bad news, but that's not necessarily the case given where Netflix is trading right now. Wednesday's report lifted the shares above $300 for the first time in more than five weeks, but that's still well below where these revised targets have settled. The new range between $385 to $422 represents 34% to 47% of upside off of Wednesday's close. Clearly these analysts are still bullish on the stock. They're merely updating their outlooks following previous notes issued when Netflix was trading higher earlier this year.
The other side of this coin is just as intriguing. Looking at a couple of the analysts actually raising their price targets after the blowout performance, it's mostly those that are bearish or neutral raising the floor on the shares. Steven Cahall at Wells Fargo is going from $288 to $308. Nomura Instinet's Mark Kelley is lifting his target from $310 to $330. They both have neutral ratings on the stock, and their upwardly revised price goals are still well below the four bullish analysts' targets.
There is a lot to dissect in Netflix's quarter, and the real challenge will be how well it holds up next month when two major rivals launch. However, as far as consumer discretionary stocks go, Netflix continues to be one of the better long-term performers. Some headline risks aren't risks at all.