On Apr 3, 2013, Zacks Investment Research upgraded Netflix (NFLX - Analyst Report) to a Zacks Rank #1 (Strong Buy). With a strong return of 79.0% year-to-date and a positive estimate revision trend, Netflix is an attractive investment opportunity.
Why the Upgrade?
Upbeat fourth-quarter results, substantial increase in paid subscriber base and continued international expansion contributed to the upgrade.
Netflix reported fourth-quarter results on Jan 23, 2013. Earnings of 13 cents per share were significantly ahead of the Zacks Consensus Estimate of a loss of 12 cents per share. This was the fourth consecutive quarter of positive earnings surprise with an average beat of 10.4%.
The better-than-expected earnings were primarily driven by robust subscriber additions in Netflix’s streaming business (both domestic and international). Netflix’s paid streaming subscriber base (both domestic and international) increased 8.76 million from the year-ago quarter and 2.87 million in the previous quarter to 30.36 million.
Based on the strong results, Netflix provided an optimistic guidance for the first quarter of 2013. Netflix forecasts earnings to be between 0 to 23 cents per share. Total subscriber base in the domestic streaming market and in the international streaming market is expected in the range of 28.5 million to 29.2 million and 6.6 million to 7.3 million, respectively.
The Zacks Consensus Estimate for fiscal 2013 increased 28.0% to $1.19 per share, as most of the estimates were revised higher over the last 60 days. For fiscal 2014, the Zacks Consensus Estimate increased 21.0% to $2.71 per share.
The long-term expected earnings growth rate for Netflix is 17.9%.
Other Stocks to Consider:
Investors can also consider other Internet service providers that are doing well right now. These include Yahoo! Inc. (YHOO - Analyst Report), Priceline.com (PCLN - Analyst Report) and Comcast (CMCSK - Snapshot Report). While Yahoo! and Comcast carry a Zacks Rank #1 (Strong Buy), Priceline carries a Zacks Rank #2 (Buy).