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Netflix (NFLX) Stock Jumps On RBC Price Target: Time to Buy?

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Netflix (NFLX - Free Report) saw its stock price surge over 2% on Thursday after RBC Capital Markets slapped a new price target on the stock. The firm raised its NFLX target because it feels that Netflix has a dominant position in the streaming market, which will become even more important with the arrival of Apple (AAPL - Free Report) and Disney (DIS - Free Report) .

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RBC Capital Markets lifted its price target for Netflix shares from $360 to $440 per share. This new price represented a 29% upside to Wednesday's closing price of 341.18 per share. The firm also reiterated its “outperform” rating for NFLX stock. “We believe these results largely confirm Netflix's strong Value Prop and Competitive Position,” analyst Mark Mahaney wrote in the note to clients Wednesday.

“We also view Netflix as one of the best derivatives off the strong growth in online video viewing and in Internet connected devices (tablets, smartphones, Internet TVs), with our proprietary survey data tracking significantly improved customer satisfaction levels.”

RBC pointed directly to its own consumer survey as another reason to be upbeat about the streaming company. The firm surveyed more than 1,500 U.S. consumers and found that 68% of Netflix subscribers were either "extremely" or "very satisfied" with the company’s service. “We believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn't currently reflected in its stock price," Mahaney continued.

The new price target reflects, in part, the company’s significant selloff following its second-quarter earnings release. And shares of NFLX climbed over 2% to $356.00 through mid-morning trading on the back of RBC’s positivity.

Shares of Netflix are down roughly 4% over the last three months, but are still up over 90% over the last 52 weeks. So now let’s dive a little deeper to see if investors should think about buying Netflix.

 

 

Overview

Netflix closed the second quarter with 130 million subscribers worldwide, which marked an approximately 25% surge from the year-ago quarter. However, Netflix failed to meet its own subscriber growth estimates by a wide margin. Making matters worse, the streaming company had beat its own forecasts in seven out of the previous nine periods, including beats in the trailing four quarters.

Netflix is still in a strong position and has committed to spend billions of dollars on content to help it compete against Hulu, YouTube (GOOGL - Free Report) , and Amazon (AMZN - Free Report) Prime. Reed Hastings’ firm is the biggest player in the streaming market, though Prime, with its “more than 100 million” members, is close on its heels. Plus, Apple is set to roll out its own streaming service within the next year or so, which will feature shows from Hollywood A-listers.

Investors should also note that Morgan Stanley (MS - Free Report) is very optimistic about Apple's stand-alone video streaming offering. “We believe that Apple Video will become a reality sooner than investors think," analyst Katy Huberty wrote in a note to clients Wednesday. “While not a first mover, Apple's attractive and sticky customer set combined with low friction sign-up and payment system could drive users to its video platform, even with a less complete content portfolio vs. Netflix NFLX.”

Plus, Disney is ready to launch its own stand-alone streaming platform in late 2019 that will include its blockbuster franchises.

Outlook

Netflix expects to add 650,000 subscribers in the U.S. and 4.35 million internationally during the third quarter. Meanwhile, our current Zacks Consensus Estimate is calling for the company’s Q3 revenues to surge by roughly 33.7% to reach $3.99 billion. At the other end of the income statement, Netflix is projected to see its adjusted quarterly earnings soar over 134% to $0.68 per share.

Clearly, the company’s growth story isn’t over yet, and investors should be pleased to see that Netflix is on its way to becoming a much more profitable company. Yet, Netflix has received 15 downward earnings estimate revisions for fiscal 2018 over the last 60 days, against only two positive changes.

Netflix’s earnings revision trends help it earn a Zacks Rank #3 (Hold). Still, investors might want to consider buying NFLX stock as it seems hard to imagine it not climbing again in the near future.

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