Netflix hit an all-time high of $706 on Wednesday, making it the second highest priced share on the S&P 500 index (SPX). The stock had however dropped in value by 3%, trading to around the $685 level by midday on Thursday and then closing at around $660.
A MarketWatch report says that analysts from two firms independently changed their market recommendation on Netflix. Christopher Cherblanc, Societe Generale analyst, swung his recommendation from buy to sell after setting a target price of $585 for Netflix which is 13% lower than the current trading levels. He added that shares in the company are now “priced to perfection”.
Citigroup analyst Mark May was not as severe in changing his recommendation from buy to neutral. His reasoning is that the company has struggled to meet earnings expectations while management continues with the expansion plans to be in 200 countries by end 2016. May added, “When looking at more traditional value metrics, Netflix looks expensive relative to peers. This reinforces our view that valuation may not have meaningful near-term upside. When considering revenue multiples, Netflix appears fairly valued, as both its revenue multiple and revenue are in-line with comparables.”
Technical analysis on Netflix by Nigam Arora of Trading Deck indicates that all the signs point to the stock being overbought. A market correction is likely to hit a stock such as Netflix quite hard. The target price forecast in this analysis is in the region of $580 which is very much in line with the Societe Generale target price. He also discusses the impending share split which he feels probably fuelled the price spike on Wednesday.
These cautions also come on the news that activist Carl Icahn has sold his last 1.4 million shares after the share split announcement on Wednesday. With reference to the stock split, Peter Tuz, president of Chase Investment Counsel, said, “Technically and intellectually, you’re slicing the pie into smaller pieces. The company is no different after splitting its stock.”
Tuz also said that historically, many stocks have done well after splitting, citing Apple and Visa as examples of stocks that rose and did well after the split. The same may well be in store for Netflix after the split which is due to take place on 15 July.
The bottom line is that most analysts seem to agree on Netflix, having an overweight view on the stock. The consensus view amongst analysts of a realistic price target of $612 is well below the Thursday closing price of $660.