Shares of streaming giant Netflix Inc (NASDAQ: NFLX) have outperformed the broader market, rendering its valuation less attractive. An analyst at Imperial Capital zeroed in four reasons for the strong showing.
The Netflix Analyst: David Miller downgraded shares from Outperform to In-Line but maintained the price target at $489, suggesting about 2.5% upside from current levels.
The Netflix Thesis: Netflix shares rallied 14.8% in the first quarter compared to the 20.6% drop for the S&P 500 Index, and thus far in 2020, the stock has jumped 50.2% as opposed to the 3.3% drop for the S&P 500 Index, Miller said in a Monday note.
- Netflix, according to the analyst, is one of very few names in the S&P 500 Index that is for the most part impervious to any economic effects of COVID-19. The price point for each service iteration is mostly recession-resistant, and consumption of content is not communal, he reasoned.
- The company doesn't have exposure to any assets in the media sector under secular threats such as cable networks, nor assets affected by COVID-19 such as theme parks or movie theaters, Miller said.
- Miller noted Netflix has disproved "Street-group-think" that the launch of Walt Disney Co's (NYSE: DIS) Disney+ in the fourth quarter would lead to market share erosion, forcing it to lower prices.
- Finally, the analyst is of the view Netflix has efficiently differentiated itself from rival Disney+ in that "Disney+ is largely a myriad of American entertainment 'brands' exported globally, while NFLX is, for the most part, a smorgasbord of global shows from almost every country cross-pollinated all around the world."
Netflix Price Action: In pre-market trading Monday, Netflix shares were edging up 0.6% to $479.90.
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Latest Ratings for NFLX
|Jul 2020||Imperial Capital||Downgrades||Outperform||In-Line|
|Jun 2020||Imperial Capital||Maintains||Outperform|
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