The Netflix (NFLX, -0.51%) shares’ price target was boosted to $730 from $585 by Raymond James on the back of improved usage and content.
The new target of $730 that has been forecasted by analyst Justin Patterson is 10% higher than the closing price of $662 on Monday.
Patterson ascribes the new target to the second-quarter survey done by his firm which indicated that there was improving content quality which is supportive of his view of strong subscriber growth and improving retention. The statistics show that 49% plan to keep Netflix while 54% subscribe for original content compared to 41% and 49% respectively in the previous survey.
The upping of the target by Raymond James is much lower than that forecast by BTIG who lifted the target to $950 from $600, while MKM Partners raised its target price to $885 from the previous $690.
A more cautious approach was adopted by Societe Generale who downgraded Netflix stock to Sell on 24 June with a target price of $585. This was followed the next day by Citigroup with a downgrade to neutral and with a target price of $722.
An article in The Street says that they are rating Netflix as a Hold and gave several reasons for this view.
There are a number of positives around Netflix, but at the same time there are also certain negatives that inform the rating. The company’s strengths include a robust growth in revenue, expanding profit margins and a notable return on equity.
The negatives which counter these attributes include a mediocre increase in net income, an increasing debt management risk and premium valuation.
Revenues have risen by 23.95 year to date, but the increase in revenue has not had much effect on the bottom line which is indicated by a drop in the earnings per share.
The gross profit margin at 83.44% is very high while the net profit is 1.5% higher than the industry average.
The return on equity at Netflix for the last quarter has improved and is higher than the Internet and Catalog Retail Industry average which is a good sign. On the other hand, the company has underperformed when compared to the S&P 500 index (SPX) for the same period.
Meanwhile, the stock has had a number of bullish forecasts with increased targets since the news of a proposed share split hit the market.
Netflix stock is up 93% this year and hit an all-time high of $706.24 on 24 June on the back of the announcement of the 7 for 1 share split which will happen after the close on 14 July.
MT4 Chart: Netflix