It’s Earnings Time: Analysts Dive into the Nitty Gritty of Netflix, Inc. (NFLX), Sonic Corporation (SONC)

Canaccord: NFLX's original content robust for Q4; Oppenheimer: SONC shares caught in SSS quicksand.


Netflix Should Be Able to Resolve Pricing Boosts Better This Time Around

While Netflix, Inc. (NASDAQ:NFLX) investors digest yesterday’s earnings, top analyst Michael Graham at Canaccord points to a “strong” and “record-setting sub” third quarter showing for the year, outperforming subscriber expectations on both domestic and international fronts. In fact, whatever short-term churn this video streaming giant may be facing, Graham is rooting for long-term tailwinds to carry Netflix.

As such, the analyst reiterates a Buy rating on NFLX stock with a $225 price target, which represents a 12% increase from current levels.

Michael Graham has a very good TipRanks score with a 62% success rate and a high ranking of #136 out of 4,697 analysts. Graham realizes 15.6% in his annual returns. When recommending NFLX, Graham yields 48.5% in average profits on the stock.

For the third quarter, Netflix reported 851k in total domestic net adds against consensus of 821k as well as total international net adds of 4,445k, trouncing consensus of 3,714k. Though international net add outlook for the fourth quarter hit roughly 425k past consensus, domestic guide was less impressive, underperforming to the harsh tune of about 370k. From the analyst’s eyes, this is attributed mostly to “embedded churn expectations” considering the latest pricing lift. Altogether, fourth quarter originals look promising (especially taking under account buzz from shows like Stranger Things and The Crown), and the analyst predicts this should “balance out churn.”

Graham underscores: “Q4 guidance was strong for international subs, revenue, and contribution profit, but domestic guidance was more muted given the phasing in of price hikes and anticipated higher churn. We are optimistic that the company can work through this change better than last year particularly given the strong Q4 original content slate. Management also gave a few indications for 2018, with increased content spend to $7-8B and boosted marketing to support that ever-growing library. Our content spend estimates were already at the high end of that range but we find ourselves taking up marketing spend estimates. Overall, our projections are only slightly changed and we still expect subscriber growth (particularly internationally) to support that spend.”

Glancing ahead, the analyst notes, “Partnerships open new doors to distribution – While the announcement of a new Disney streaming service inspired caution among NFLX investors, the company has continued to explore several avenues of partnership.” Anticipating content spend growth will keep ramping, with the NFLX management team hoping to invest $7 to $8 billion on content next year, quite a noticeable rise from last year’s $5 billion and this year’s $6 billion.

Following the earnings showcase, Graham has slightly hiked his international projections, but dials back just a tad on his domestic forecasts.

Most of Wall Street is streaming in this giant’s corner, as TipRanks analytics showcase NFLX as a Buy. Based on 35 analysts polled by TipRanks in the last 3 months, 22 rate a Buy on Netflix stock, 12 maintain a Hold, while 1 issues a Sell on the stock. The 12-month average price target stands at $213.36, marking a nearly 7% upside from where the stock is currently trading.

Sonic May Have Some Cloudy Skies, But Investors Liked 4Q Results

Sonic Corporation (NASDAQ:SONC) shares are surging 6% after delivering a fourth quarter earnings beat for the year that offset a comp shortcoming. The strengths of the beat rode a wave of improved restaurant profits, general and administrative expenses, and a tax rate that helped to slightly outweigh a decline in franchise revenue. However, weather was less than ideal, which caused a struggle for the restaurant chain when it came to same store sale comps, leading to an underclass.

Oppenheimer analyst Brian Bittner is biding the time until the chain’s SSS no longer is negative, sighing that “Catalysts remain stalled.”

For now, despite lackluster “post print thoughts,” the analyst maintains an Outperform rating on SONC stock with a $29 price target, which implies a close to 13% increase from where the stock is currently trading. (To watch Bittner’s track record, click here)

For the fourth quarter, Sonic posted adjusted EPS of $0.45 topping the Street’s $0.43, but a comp of -3.3% that fared not as well when juxtaposed the Street’s -1.3%. Restaurant profits for the quarter were +$0.02 coupled with G&A of +$0.03 and a tax rate of +$0.01. Franchisee revenue sank to -$0.04.

For 2018, the Sonic team set an outlook calling for EPS growth between 5% and 10%, which would signify a range of $1.32 to $1.38 compared to the Street’s $1.36. Additionally, management indicated a long-term EPS algorithm of 15% that takes under account low-single-digit SSS.

Bittner comments, “Similar to our preview note, ’18 EPS guidance was initiated a tad below consensus at its midpoint (by $0.02/sh). This outlook relies on SSS of 0-2%, which tilts aggressively given current trends still aren’t positive (‘flattish’ ex-weather). We believe shares remain stuck in a dead zone until SSS turn sustainably positive, which mgmt tried to persuade will begin after this quarter. In the meantime, downside to stock appears mostly tied to potential earnings revisions, which looks to be minor based on our work and SONC’s now more franchised model.”

Moreover, weather still does not look promising for the first quarter of 2018: “SSS in 1Q18 thus far are ‘flattish’ ex-weather vs. Street’s +0.3% estimate. This represents an acceleration from 4Q17 when SSS were -3.3% (-2% ex-weather) as SONC more aggressively pushes value products. For full-year F18, mgmt guided SSS to 0-2% (vs. Street’s +1.5%), with 1Q expected to be ‘modestly below’ the full-year range when including negative impact from weather (unquantified).”

On a positive concluding note, “the completion of refranchising lower-margin stores helped the year-over-year,” writes Bittner.

Wall Street is undecided on this consumer goods player, as according to TipRanks, out of 6 analysts polled by TipRanks in the last 3 months, half are bullish on Sonic stock while half remain sidelined. With a return potential of nearly 4%, the stock’s consensus target price stands at $27.33.SONC analyst ratings chart