Netflix Turns Into Battleground Stock (NFLX)

Netflix, Inc. (NASDAQ: NFLX) has become nothing short of a battleground stock with many in favor and many getting very questionable.  It has a cult following and a momentum following in the investing public, it has millions of loyal subscribers, and it has a high-P/E and high valuations to boot.  In the same day, we have seen two highly different calls… one very bullish, one very cautious.  So what do you do when you get a same-day duel in a stock like this?

Morningstar has come out and been positive near-term this morning, but the long-term concerns are just too hard to overlook here.  Morningstar is of the opinion that “the competitive landscape will change dramatically… As a result, when looking at the long-term prospects for cash flow generation, we think the shares are currently overvalued.”  Morningstar’s Full Note

TheStreet.com says Netflix makes sense at $100… The premise is that the 14 million customer base may only be worth $50 per share if the base cannot grow beyond 20 million, but it also notes that the stock is possibly worth $180 per share if the subscriber count can reach 80 million. Or $82, based upon projections.  TheStreet.com’s Full Take

As far as other takes, here are several which have come out since its earnings and guidance when shares popped last week from $86.98 to over $100 after earnings:

• Moody’s believes that the breakout performance will result in its dominance of the physical rental marketplace in the US at the expense of rival competitors and at the expense of physical DVD retail sales.
• Citi’s analyst Mark Mahaney raised his rating to Buy from Hold and raised the stock price target from $75.00 to $110.00 per share.
• UBS reiterated a Neutral after earnings.
• Wedbush Morgan maintained an ‘Underperform’ rating, but did increase the target to $73 from $60.
• Stifel Nicolaus reiterated a Buy rating but raised the target to $105 from $85.

Netflix has a 52-week trading range of $36.25 to $109.70, and with shares down 2.3% at $99.70 today it has an implied market cap of $5.21 billion.  With 2010 estimates from Thomson Reuters at $2.62 EPS and $2.15 billion, it trades at close to 2.5-times expected revenues and about 38-times expected earnings.  For 2011, those estimates are $3.40 EPS and $2.66 billion in revenues, the multiples based upon 2011 are about 29-times earnings and about 1.9-times revenues.

If you want to add fuel to the fire, the most recent short interest for mid-April was listed as 10.71 million shares.  That is about 4.4 days to cover or almost 20% of its float.

Differing opinions?  That’s what makes a ballgame.

JON C. OGG

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