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Netflix is
scheduled to report third quarter 2008 results after the market
closes on Monday, October 20. Based on our analysis, we at
eChristianInvesting are expecting NFLX to report better than
expected results that beat Wall Street’s recently reduced
expectations.
Analyst
Expectations
We are
forecasting revenues of $345M and EPS of $.32. This would
represent a 17% increase in revenues from last year’s $294M in
the same period. The current analyst consensus calls for
revenues of $342.6M and $.31 EPS. On October 6, the company
pre-announced revenue of $337 – 342 million and EPS within the
previous guidance range of $0.26 – 0.34.
Until
August, business seemed to be going good at Netflix despite the
difficult economic climate. Subscriber growth in August came in
below expectations as great summer weather undoubtedly caused
many to delay subscribing to the service. However, we believe
that the investment thesis for this company is still intact.
Netflix
offers a low-cost alternative to budget-conscious consumers that
should allow it to thrive even in tough economic times. The
strong uptick in subscribers in September seems to support that
and we also believe the recent $1 per month price increase for
Blu-ray subscribers will also provide an added boost for the
next few quarters.
Share
Performance
To date,
Netflix’s shares are down 12%. The company had performed quite
well until pre-announcing the disappointing 3rd
quarter results earlier this month. That sent their shares down
over 24% in October alone. They still remain one of the better
performing stocks this year, having easily outperformed the S&P
500’s dismal 36% loss (YTD).
Valuation
Shares are
now trading at only 15x consensus 2009 EPS estimates. This is
inline with the relative valuations of their peer group (which
have all fallen in recent weeks). However, we continue to
believe that Netflix’s superior business model will allow NFLX
shares to trade higher in the coming months.
Recommendation:
Buy with a $26 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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