Goldman Sachs Defends Netflix (NFLX), Stock Too Cheap
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Price: $564.80 +1.74%
Rating Summary:
43 Buy, 27 Hold, 4 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 11 | Down: 12 | New: 13
Rating Summary:
43 Buy, 27 Hold, 4 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 11 | Down: 12 | New: 13
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Goldman Sachs lowered estimates and its price target on Netflix (NASDAQ: NFLX) from $330 to $270, but reiterated its Buy rating following lower domestic subscriber guidance from the company.
Taking a positive tone on the subscriber guidance, the firm notes that Netflix will end Q3 will more than 40% of its U.S. subscribers on the streaming-only plan. They view this as a positive a gross margin for an incremental streaming sub is close to 100% and streaming is Netflix’s growth business.
Goldman also said the forecasting error from the company "is not thesis changing." They said, "We believe that Netflix experienced a forecasting error, underestimating the number of people leaving the service altogether due to the negative press surrounding the recent price increase." There are still significant barriers to entry and it will be difficult for a competitor to offer a better value than Netflix, the analyst argues.
With a compelling valuation of $8 billion and a stock trading at a multiple in line with our Internet coverage despite faster growth, the stock should be bought Goldman concludes. They note that at $155/share, Netflix trades at 11X 2012E EBITDA/0.8X PEG versus Internet peers at 11X/1.0X.
The firm cut 2011-2013 EPS estimates to $5.03/$6.95/$9.63 from $5.12/$7.69/$10.80.
For more ratings news on Netflix click here and for the rating history of Netflix click here.
Shares of Netflix closed at $155.19 yesterday.
Taking a positive tone on the subscriber guidance, the firm notes that Netflix will end Q3 will more than 40% of its U.S. subscribers on the streaming-only plan. They view this as a positive a gross margin for an incremental streaming sub is close to 100% and streaming is Netflix’s growth business.
Goldman also said the forecasting error from the company "is not thesis changing." They said, "We believe that Netflix experienced a forecasting error, underestimating the number of people leaving the service altogether due to the negative press surrounding the recent price increase." There are still significant barriers to entry and it will be difficult for a competitor to offer a better value than Netflix, the analyst argues.
With a compelling valuation of $8 billion and a stock trading at a multiple in line with our Internet coverage despite faster growth, the stock should be bought Goldman concludes. They note that at $155/share, Netflix trades at 11X 2012E EBITDA/0.8X PEG versus Internet peers at 11X/1.0X.
The firm cut 2011-2013 EPS estimates to $5.03/$6.95/$9.63 from $5.12/$7.69/$10.80.
For more ratings news on Netflix click here and for the rating history of Netflix click here.
Shares of Netflix closed at $155.19 yesterday.
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