Market Overview

MKM Expects Netflix To Post 30% Returns For The Next 5 Years

MKM Expects Netflix To Post 30% Returns For The Next 5 Years

Netflix, Inc. (NASDAQ: NFLX) is a tale of two stories: it's the worst-performing FANG member over the past one-, three- and six-month periods, but at the same time the stock gives a sustainable yearly return of 30 percent, according to MKM Partners.

The Analyst

Analyst Rob Sanderson maintains a Buy rating on Netflix with an unchanged $415 price target.

The Thesis

Netflix's stock is a victim of the current "risk-off environment" despite no change to the streaming video provider's fundamentals and earnings potential, Sanderson said in a Monday note. (See his track record here.)

The weakness in Netflix's stock of late could be attributed to "nervous hands sitting on significant" profits amid a concerning environment dominated by the Federal Reserve, business cycle concerns and geopolitical instability, the analyst said. 

Despite the background noise, Netflix remains on track to generate earnings of more than $40 per share by 2025, as the company continues to build "significant muscle" through in-house production and acquiring other facilities, Sanderson said. 

The math behind MKM's outlook assumes a 25 times forward P/E multiple and implies a potential for a 30-percent average annual return for the coming five years.

Netflix's creative talent is undergoing a "free-agent" transformation in which the best people in the business will migrate toward the best platform for reach and monetization, Sanderson said.

If one were to assume a 20-percent margin for a studio, producing one quarter of Netflix's 2020 content budget would free $1 billion for Netflix to use elsewhere, or the equivalent of ten times the reported renewal cost of "Friends," he said. 

Price Action

Shares of Netflix were trading higher by 1.4 percent late Monday morning.

Related Links:

From Bearish To Bullish: Buckingham Upgrades Netflix

Analyst: FANG Stocks Growth Fundamentals Remain Relatively Strong

Photo courtesy of Netflix. 

Latest Ratings for NFLX

Jan 2021DZ BankUpgradesHoldBuy
Jan 2021Pivotal ResearchMaintainsBuy
Jan 2021Morgan StanleyMaintainsOverweight

View More Analyst Ratings for NFLX
View the Latest Analyst Ratings


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