Stifel: Netflix's 70% Run Is Overdone

Netflix, Inc. NFLX is up nearly 70-percent year-to-date, and some bulls think it’s getting a bit ahead of itself.

The Rating

Stifel Nicolaus analysts Scott Devitt and John Egbert downgraded Netflix to Hold, but raised their price target from $283 to $325.

The Thesis

Netflix catalyzed an ongoing run in January with its fourth-quarter earnings and guidance beats. The stock broke $300 at the beginning of March and sits at an all-time high of $325. Stifel Nicolaus considers the reaction overdone.

“We are attracted to Netflix’s business and competitive position but believe share price may have sprinted ahead of fundamentals in the short-term,” Devitt and Egbert wrote in a Wednesday note.

They expect content investments — estimated at $8.2 billion in 2018, $10.2 billion in 2019 and $12.2 billion in 2020 — to limit free cash flow over the next several years and prompt a debt raise of $3.6 billion between 2018 and 2019.

At the same time, the analysts anticipate improved growth in international subscriptions and maintain more bullish global new-user estimates than Street peers. They foresee a 2018 addition of 25.98 million subscribers against the 23.69-million consensus.

“If Netflix continues to meaningfully exceed investor hurdles for net subscriber additions into 2018, momentum in NFLX shares could continue, however we believe share price outperformance over the next several quarters may be more difficult to achieve given the recent run and increasing expectations,” Devitt and Egbert wrote, affirming confidence in the firm’s long-term prospects.

Price Action

The stock slid to trade down 2 percent premarket at $318.49.

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