(Bloomberg) — Netflix Inc. has been one of the standout performers of 2020, advancing as the pandemic keeps people indoors and fuels demand for streaming video, but some analysts are starting to express caution about the size and speed of the recent advance.
The stock has surged 40% off a low hit just last month, and it has been trading at record levels. Netflix is one of the four biggest 2020 gainers among S&P 500 components; the benchmark index is down 12% thus far this year.
The stock dropped as much as 5.5% on Friday, falling alongside other “stay-at-home” plays on hopes that the worst of the economic impact of the coronavirus outbreak may pass sooner than some had expected.
While Netflix “has been the biggest winner” of the current environment, “the key question is, ‘how much is priced into NFLX shares?’” Raymond James wrote in a note dated April 16. Analyst Justin Patterson has a strong buy rating on the stock, but wrote that he expects “the next wave of catalysts” will be staggered between the second half of 2020 and the first half of next year.
“As such, we believe further multiple expansion is less likely” over the remainder of the first half of 2020.
Benchmark Co. on Friday wrote that the recent rally “seems excessive.” Analyst Matthew Harrigan argued that at current valuations, the stock “fully recognizes its global streaming leadership and the pop culture appeal of transient hits like ‘Tiger King.’” He initiated coverage on the stock by recommending investors sell it.
Analysts have grown steadily more optimistic about Netflix’s prospects in the current environment; the average price target on the stock is $394, up from $354 at the end of 2019. But that average implies that the stock could fall nearly 7% from current levels, and even some of the analysts who have raised their targets have expressed skepticism about the scale of recent gains.
Rosenblatt Securities wrote that the current valuation implies “a higher recurring revenue base” than it was expecting. Netflix is scheduled to report first-quarter results next week, and analyst Bernie McTernan wrote that in order for him to become more bullish, “we would have to see a sizable beat” and have greater confidence in the potential for a price increase.
On Thursday, Wedbush wrote that any tailwinds Netflix sees from the pandemic were “more than priced in” at current levels, and that spending on new movies and shows would “trigger substantial cash burn for many years.”
Currently, seven analysts recommend selling Netflix, while six have the equivalent of a hold rating. The vast majority of firms tracked by Bloomberg are bullish, with 30 advocating buying the stock.
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