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Should You Buy Netflix (NFLX) Stock Ahead of Q1 Earnings?

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Shares of Netflix (NFLX - Free Report) climbed on Wednesday for the second day in a row as the streaming giant builds momentum ahead of its first quarter earnings results. Netflix has also been one of the best performing stocks so far this year. But now investors should look to the company’s Q1 estimates to see if this outstanding run looks poised to continue in the immediate future.

Morgan Stanley (MS - Free Report) and JPMorgan (JPM - Free Report) both significantly upped their price targets for Netflix this week, pointing directly to the company’s international growth opportunities. This is great news for Netflix investors, yet these more long-term outlooks don’t necessarily signal a strong first quarter from Netflix (also read: Why Is Netflix Stock Climbing Today?).

While markets lean more bearish amid Chinese trade war concerns, many investors will be on the hunt for stocks that are set to perform well in the near-term. With that said, let’s take a look at some of Netflix’s current estimates as we get closer to the release of the streaming power’s Q1 financial results.  

Q1 Outlook

Our current Zacks Consensus Estimates are calling for Netflix to post revenues of $3.69 billion, which would mark a nearly 40% surge from the year-ago period. Meanwhile, Netflix’s Q1 earnings are expected to soar by 57.5% to hit $0.63 per share.

These estimates clearly show investors that Netflix is expected to continue its top and bottom line expansion in the first quarter, but investors will need to know more before they decide to buy Netflix stock ahead of earnings.

Earnings ESP Whispers

The next thing that investors should consider is if Netflix is actually expected to post better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

NFLX currently sports a Zacks Rank #2 (Buy) and an Earnings ESP of 1%. This means that Netflix is a stock that looks poised to top first quarter earnings estimates.

Price Performance and Surprise History

Another important factor to consider ahead of Netflix’s Q1 report is the company’s history of earnings surprises and the effect that these surprises have had on share prices.

Netflix, Inc. Price, Consensus and EPS Surprise

Netflix, Inc. Price, Consensus and EPS Surprise | Netflix, Inc. Quote

As we can see, Netflix has a relatively solid earnings surprise history over the last few years, although the company has missed earnings estimates in two of the last three quarters. Despite some recent misses, Netflix tends to see its stock price climb immediately following an earnings release.

Bottom Line

Past performance is clearly not a barometer of future success. But in Netflix’s case, the company is currently a Zacks Rank #2 (Buy) and rocks an Earnings ESP of 1%. This means that investors should consider the stock as likely to top earnings estimates based on our proven system.

Netflix is also expected to top its current first quarter subscriber growth estimates, according to Goldman Sachs (GS - Free Report) . This is a great sign for investors and the company as it prepares to fight against the likes of Amazon (AMZN - Free Report) , Hulu, HBO, and soon enough Disney (DIS - Free Report) , in the war for streaming supremacy.

Netflix is scheduled to report its Q1 financial results after market close on Monday, April 16.

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