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Should You Buy Netflix (NFLX) Stock Right Now?

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Shares of Netflix (NFLX - Free Report) climbed on Wednesday morning on the back of a yet another significant upgrade, this time from analysts at Bank of America Merrill Lynch (BAC - Free Report) , who cited even “more upside for the new king of all media.” That’s a bold claim, so let’s dive into the reasoning and see if now might be a good time to buy Netflix stock, as it looks poised to continue to climb.

Netflix stock suffered its biggest one-day downturn since July 2016 on Monday amid a broader tech selloff. Netflix stock has largely recovered from that non-fundamental slip and Wednesday’s gains stem from the fact that Bank of America analysts reiterated their “buy” rating and upped their price target from $352 to $460.

The new price target represents a roughly15% premium to Tuesday’s closing price of $399.39 per share. “We think Netflix can become the dominant streaming player in virtually all markets given its content scale, despite varying levels of competition, regulation, and economic conditions in each market," analyst Nat Schindler wrote in a note to clients Wednesday. "Netflix continues to benefit from strong execution and favorable secular trends as the transition to internet video accelerates globally, and strong demand for premium on-demand content continues."

The analysts also see Netflix’s subscriber base expanding 8% annually through 2030. That might not sound like much, but the company closed the first quarter with 125 million members, and the analysts believe the streaming giant can hit 360 million subscribers 12 years from now.

“Netflix continues to build its original content library, which will be an important asset as more competitors bring direct-to-consumer offerings to market,” the analyst wrote. “A stronger original content library supports longer-term pricing power.”

Fundamentals

Now that we have covered the most recent bullish analysts take, it’s important to understand just how vital original programming is for Netflix. The company realized it was impacting the way people consumed content a few years back and anticipated the transition toward streaming, internet-based on-demand consumption, which is why it has spent and plans to continue to spend, billions of dollars on original content.

Netflix has to remain the most attractive streaming provider to fends off competition from the likes of Amazon (AMZN - Free Report) , Hulu, HBO, and others. Meanwhile, fellow entertainment powers are also committed to expansion, and this content push becomes even more paramount with Disney (DIS - Free Report) set to launch its own streaming services in late 2019—and pull its content from Netflix—with other entertainment giants sure to follow. 

Content worth paying for and major hit shows is what has made HBO a powerhouse for years, and Netflix looks poised to churn out big-budget movies and TV shows, as well as smaller indie-type projects in perpetuity because it is the only way it will be able to attract customers and investors going forward.

Netflix added 7.41 million new members in the first quarter, which marked a 50% jump from the year-ago period and topped the company’s forecast of 6.35 million, to bring its total to 125 million—Hulu last reported a paid subscriber base just over 17 million at the end of 2017.

Looking forward to the second quarter, Netflix expects to add 6.2 million new members, and more subscribers means the company has more sway on the cultural conversations that revolve around TV these days, not to mention pricing power. Netflix’s user base and its ability to expand has helped its stock price skyrocket 164% over the last year and roughly 110% since the start 2018—which makes it one of the S&P 500’s top performers.

Quick Outlook 

Bank of America Merrill Lynch clearly thinks Netflix stock has plenty of room to climb. Meanwhile, some other Wall Street firms see even more upside.

Imperial Capital just recently initiated coverage of NFLX with a $503 price target, which came on the back of GBH Insights price hike from $400 to $500. At the time, GBH’s updated price target marked the highest out of the 36 analysts who cover Netflix, according to FactSet, and came less than a week after Goldman Sachs (GS - Free Report) lifted its target from $390 to $490.

The company is also expected to see its top and bottom lines surge in 2018. Our current Zacks Consensus Estimates are calling for Netflix’s Q2 revenues to surge by 41.29% to reach $3.94 billion, while its full-year revenues are projected to soar by 38% to touch $16.13 billion.

At the other end of the income statement, Netflix’s adjusted Q2 earnings are projected to skyrocket 433% from $0.15 per share to $0.80 per share. For the full-year, the company’s earnings are expected to climb by 130% to touch $2.88 per share.

With all that said, now might be the time to jump on Netflix stock with its price set to climb, its user base expected to grow, and its earnings projected to expand.

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