U.S. stocks traded lower on Tuesday as oil prices fell and Alcoa kicked off earnings season with a miss. Among the equities in focus on Smarter Analyst are electric car giant Tesla Motors Inc (NASDAQ:TSLA) and TV show-streaming platform Netflix, Inc. (NASDAQ:NFLX). Let’s take a closer look:
Tesla Motors Inc
Barclays analyst Brian Johnson offers insight on Tesla Motors after CEO Elon Musk “served up the pie he promised with a 3Q delivery beat,” sharing stellar vehicle deliveries and production figures in a press release on October 2nd. From the analyst’s perspective, the outclass is attributed to a large quarterly sales push, particularly highlighting September as a solid month for the electric car giant.
Despite the beat, however, Johnson reiterates an Underweight rating on TSLA with a price target of $165, which represents a nearly 18% downside from where the shares last closed.
Regarding the SCTY merger, “With publicly announced Model 3 timing likely to remain intact until at least early next year, we believe the vote later this fall on the proposed SCTY merger remains the most crucial catalyst for the stock. We remain skeptical of the merits of the deal – cash burn is already intense at Tesla, the solar market is challenging, and Tesla did not seriously consider lower-cost solar assets. That said, we increasingly believe the deal will go through – Tesla/Elon loyalists are likely to vote yes, and while some Elon loyalists may be skeptical of solar, they will likely vote yes, as a no vote would imperil Tesla’s ability to raise the funds needed for Gigafactory and Model 3,” Johnson concludes.
From now through the close of 2017, the analyst projects an incremental $2.5 billion equity raise.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst Brian Johnson is ranked #1,733 out of 4,184 analysts. Johnson has a 56% success rate and realizes 1.3% in his yearly returns. When recommending TSLA, Johnson yields 8.2% in average profits on the stock.
TipRanks analytics demonstrate TSLA as a Hold. Based on 13 analysts polle din the last 3 months, 2 rate a Buy on TSLA, 7 maintain a Hold, while 4 issue a Sell. The consensus price target stands at $221.00, marking a nearly 10% upside from where the stock is currently trading.
From the analyst’s perspective, NFLX “has a long runway for growth,” but warns, ” “This is a very long duration, high multiple investment with market expectations that appear too high through 2020, when most analysts seem to be looking for valuation support.”
While Kraft might indicate positive perspective on the business, he is “cautious on the stock” and deems the sale of the streaming giant “unlikely.” Kraft sees the risk/reward for shares as “unattractive” and notes skepticism on NFLX’s prospects to be acquired. When it comes to Disney or Apple as acquisition contenders, the analyst believes, “Lack of a compelling strategic rationale and severe economic/earnings dilution are major obstacles to a potential combination.”
Kraft contends that “consensus estimates reflect an optimistic case with downside risk,” as his EBIT estimates fall under consensus for each year from now through the year 2020, “with higher expenses as the driver of the difference in 2017, and lower revenue increasingly the primary driver in 2018-2020.”
Long-term, Kraft recognizes a “very successful” business model, evident from his forecast of 200 million subscribers in the year 2026, compared to 83 million today, $27 billion in revenue, compared to $9 billion in 2016, $8 billion in EBIT, compared to $0.2 billion in 2016, and a 28% EBIT margin.
As far as accessing content, Kraft believes Netflix is in a good position with its original programming, particularly thanks to a programming budget that helps the giant “mitigate the apparent risk” from competitors like Amazon, Hulu, and other local international players. In regards to where subscription video on demand (SVOD) services stand, the analyst sees Netflix as “the must have” for U.S. users. Meanwhile, the analyst praises that NFLX has been successful abroad “in markets where local TV incumbents have failed.”
Kraft asserts, “Consequently, we think Netflix will continue to succeed given its constant re-investment into content and UX. Yet, we think Amazon is the key competitor to watch.”
Yet, as domestic subscriber growth rates continue to decelerate, ultimately, the analyst believes this “underscores need to re-invest.”
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Bryan Kraft is ranked #204 out of 4,184 analysts. Kraft has a 73% success rate and gains 16.0% in his annual returns. When recommending NFLX, Kraft earns 0.0% in average profits on the stock.
TipRanks analytics exhibit NFLX as a Buy. Based on 34 analysts polled in the last 3 months, 17 rate a Buy on NFLX, 10 maintain a Hold, while 7 issue a Sell. The 12-month price target stands at $106.52, marking a 3% upside from where the shares last closed.