An analyst from Benchmark Research, Matthew Harrigan, has suggested that while Netflix Inc. currently holds a “relatively” favorable position in the industry amid ongoing strikes by writers and actors, its stock valuation does not accurately reflect reality.
Harrigan noted that Netflix shares were trading significantly above their 200-day and 50-day moving averages, with an increase of 36% and 27% respectively. Additionally, the stock has experienced impressive growth rates of 53% year-to-date and 136% over the past 12 months.
Despite Netflix’s advantages, such as a robust inventory of new content and substantial overseas production that remains unaffected by the U.S. labor shutdown, there is still a possibility that prolonged strikes could dampen its projected 2024 growth, according to Harrigan.
In highlighting the current situation, Harrigan pointed out the escalating acrimony between the striking parties due to concerns over high executive pay in the entertainment industry. The Sun Valley Allen & Company retreat also faced unfortunate timing, coinciding with images of picket lines outside studio gates.
Harrigan explained that if the strike resolution requires studios to increase compensation for writers and actors involved in streaming, all studios would face an impact. However, Netflix could be particularly affected as it is seen as the main driver behind the absence of residuals for streaming compared to linear platforms.
In conclusion, while Netflix maintains several advantages amidst the ongoing strikes, its stock valuation may be overly optimistic considering the potential long-term impact. The future growth trajectory of the company remains subject to uncertainties related to strike resolutions and compensation adjustments.
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Furthermore, he noted that the company doesn’t have live sports or news programming unlike many of its rivals, which could prove a disadvantage in “extended strike scenarios.”
Harrigan Boosts Price Target on Netflix Shares
Harrigan boosted his price target on Netflix shares to $293 from $250.
Netflix Likely to Share More Information on Strike Impact
Netflix likely will share more information about how the strikes could impact its business when the company delivers second-quarter earnings after Wednesday’s closing bell.
“Very High” Expectations for Netflix Ahead of Earnings
A Wells Fargo analyst weighed in late Monday that Netflix shares seem “priced to perfection” ahead of earnings with “very high” expectations on the buy side, though he thought the shares would push through short-term concerns.
Could Recent Love for Netflix Spell Trouble?
Long-term investors may not be “deterred” by a perceived earnings disappointment relative to high expectations, even if shorter-term ones might drive the stock down in their initial response to results, Wells Fargo’s Steven Cahall wrote.
Cahall Had Overweight Rating and $500 Target Price
Cahall had an overweight rating and $500 target price on Netflix’s stock.