Netflix (NFLX) Concerns Seen as Opportunity at Pacific Crest

Pacific Crest reiterated an Overweight rating on Netflix (NASDAQ: NFLX) with a price target of $130. Analyst Andy Hargreaves recommended buying shares given reduced risk and huge opportunity in global distribution. The analyst believes shares are pricing in a miss on domestic subs in Q2 and continued deceleration in international subs. These concerns are overdone, in his view.

"Netflix's aggressive shift to full global distribution has fueled uncertainty that is currently heightened by concerns about Q2 domestic subs and full-year international subs. We believe this concern is overdone. We have seen nothing to suggest a material change in the pace of domestic sub growth, and believe international sub growth will reaccelerate in Q3 following a Q2 that is likely impacted by seasonality and elevated churn following the global launch in Q1," said Hargreaves.

"We believe the current consensus estimate for 13 million international net adds in 2016 assumes the lowest level of incremental adoption on record in targeted markets (those launched prior to 2016). It would also mark a sharp reversal from what we believe has been accelerating adoption in the past four years, which suggests consensus is likely conservative," continued the analsyt.

Hargreaves added, "Six of the 20 largest one-day declines in NFLX since 2010 have happened in the last 12 months, the period of Netflix's most aggressive international expansion. The only comparable period for the stock was 3Q11 through 3Q12, following the separation of the DVD and streaming segments, after which NFLX appreciated over 300% in a year. While similar appreciation from here is unlikely, we believe solid execution around the shift to full global distribution could drive NFLX significantly higher."

For an analyst ratings summary and ratings history on Netflix click here. For more ratings news on Netflix click here.

Shares of Netflix closed at $87.97 yesterday.

You May Also Be Interested In

• Netflix (NFLX) PT Lowered to $92 at KeyBanc
• Stephens Downgrades WW Grainger (GWW) to Equal Weight
• HSBC Downgrades IBM (IBM) to Reduce, 'Stretched Valuation'