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Earnings Estimates Moving Higher for Netflix (NFLX): Time to Buy?

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Netflix (NFLX - Free Report) could be a solid addition to your portfolio given a notable revision in the company's earnings estimates. While the stock has been gaining lately, the trend might continue since its earnings outlook is still improving.

The upward trend in estimate revisions for this internet video service reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Netflix, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $1.55 per share, which is a change of +103.95% from the year-ago reported number.

The Zacks Consensus Estimate for Netflix has increased 46.37% over the last 30 days, as five estimates have gone higher while one has gone lower.

Current-Year Estimate Revisions

For the full year, the earnings estimate of $5.98 per share represents a change of +44.79% from the year-ago number.

The revisions trend for the current year also appears quite promising for Netflix, with 11 estimates moving higher over the past month compared to one negative revision. The consensus estimate has also received a boost over this time frame, increasing 9.16%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Netflix currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on Netflix because of its solid estimate revisions, as evident from the stock's 5.1% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.


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