RBC Capital: We Still See Hidden Valuation Upside With Netflix

In a research report sent to investors, RBC Capital analyst Mark Mahaney maintained an Outperform rating on Netflix (NASDAQ:NFLX) with a price target of $550, ahead of the company’s fourth-quarter results, which will be reported on January 20th.

Mahaney wrote, “We are looking for $1.48B in Rev and $0.44 in GAAP EPS. Our estimates are consistent with company guidance and consensus estimates. We also expect Q1 revenue guidance to approximate consensus, but Street Q1 EPS estimates appear aggressive given the probability of ongoing International market launches and their associated marketing and content costs.”

The analyst added, “We continue to believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn’t factored into its stock price. And the company still has plenty of Content, Marketing, and Market Expansion levers to achieve Global Sub levels nicely in excess of 100MM long-term, which implies close to $50 in long-term EPS power.”

“We still see hidden valuation upside with NFLX, with the stock trading at 20X ’15E EBITDA (eliminating International losses), 15X EBITDA (normalizing International margins to the current 20% U.S. level) and 10X EBITDA (assuming “peak” 30% EBITDA margins).”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Mark Mahaney has a total average return of 21.3% and a 57.9% success rate. Mahaney has a 59.1% average return when recommending NFLX, and is ranked #21 out of 3426 analysts.

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