NFLX Stock Study (2-2-23)

I recently* did a stock study on Netflix Inc. (NFLX) with a closing price of $361.99.

CFRA writes, “Netflix is the world’s largest Internet subscription service for accessing TV shows and movies.”

This large-sized company has grown sales and earnings at annualized rates of 26.6% and 58.4%, respectively, over the last 10 years. Lines are mostly up and parallel except for EPS declines in ’15 and ’22. PTPM has trended higher over the last 10 years from 3.9% to 16.6% with a last-5-year average of 13.4%. This trails peer (stated as PARA and FOX) and industry averages.

ROE has trended up from 9.2% to 21.6% over the last 10 years with a last-5-year average of 26%. Debt-to-Capital increased from 27.3% in ’13 to 66.4% in ’18 before declining to 40.9% in ’22. The last-5-year average is 56.5%, which is higher than desired. Interest Coverage is somewhat reassuring at 8, but Quick Ratio offers little comfort at 0.96. As of Q2 2022, the M* analyst describes the company “in a decent position” with $14.2B long-term debt and $7.8B cash. Management has stated the firm should not need to tap the credit market in the future to fund its ongoing content spending, but this can always change.

I assume long-term annualized sales growth of 8% based on the following:

• CNN Business projects 8.5% YOY and 10.2% per year for ’23 and ’22-’24, respectively (based on 36 analysts).
• YF projects YOY 8.9% and 11.8% for ’23 and ’24, respectively (32 analysts).
• Zacks projects YOY 8% and 11.6% for ’23 and ’24, respectively (12).
• Value Line projects 9.7% annualized growth from ’21-’26.
• CFRA projects 9.4% YOY and 10.5% per year for ’22 and ’21-’23, respectively.
• M* provides a 2-year estimate of 10.2%.

I assume long-term annualized EPS growth of 8% based on the following:

• CNN Business projects 13.7% YOY and 19.6% per year for ’23 and ’22-’24, respectively (based on 36 analysts), along with 5-year annualized growth of 24%.
• MarketWatch projects 17.8% and 20% per year for ’22-’24 and ’22-’25, respectively (45 analysts).
• Nasdaq.com projects 26.6% and 28.9% per year for ’23-’25 and ’23-’26, respectively (14, 7, and 2 analysts).
• YF projects YOY 14.9% and 26.2% for ’23 and ’24, respectively, along with 16% per year for the next 5 years (32).
• Zacks projects YOY 11.9% and 28.3% for ’23 and ’24, respectively, along with 19.2% per year for the next 5 years (14).
• Seeking Alpha projects 5-year annualized growth of 24.5%.
• Value Line projects 7.7% per year from ’21-’26.
• CFRA projects 16.6% YOY and 21.5% per year for ’22 and ’21-’23 along with 3-year annualized growth of 18%.
• M* gives a long-term estimate of 18.2%.

I’m forecasting near the bottom of the long-term-estimate range (8.9% – 26%). Because a rebound is forecast following a sharp [quarterly] EPS drop in ’22, I decided to override projection from the last annual (vs. quarterly) data point.

My Forecast High P/E is 35. High P/E has come down from 210 in ’13 to 61.3 in ’22 with a last-5-year average trending lower at 93.9. At some point, I expect P/E to fall into a “normal” range.

My Forecast Low P/E is 25. Low P/E has come down from 49.1 in ’13 to 16.4 in ’22. The last-5-year average is trending lower at 48.1. Again, at some point I expect this to fall into a “normal” range and we may already be starting to see this.

My Low Stock Price Forecast of $247.7 is default. This is 31.2% below the last closing price. The 52-week low price is $162.7.

All this results in an U/D ratio of 1.3, which makes NFLX a HOLD. The Total Annualized Return (TAR) is projected at 7.2%.

A PAR (using Forecast Average, not High, P/E) of 3.9% dictates waiting for a lower price. I certainly see room for downside stock volatility as my Low Stock Price Forecast is > 50% above the 52-week low.

If I can glean any current optimism for buying prospects then it would be in the margin of safety, which I can assess through comparison with Member Sentiment (MS). Out of 333 studies over the past 90 days, projected sales, projected EPS, High P/E, and Low P/E average 12.9%, 11.8%, 65.3, and 54.3, respectively. I am lower on all inputs—especially on P/E. Value Line projects a future average annual P/E of 35.5, which is also higher than my 30.

MS has a Low Stock Price Forecast ~$239, which is lower than mine. A closer look reveals some projected lows over $300 (some much higher than the current price) and some under $100. When I exclude these 67 studies, the MS Low Stock Price Forecast drops to $198.69. While that would pull NFLX even farther from the Buy zone in my study, at -31.2% I think my Low Stock Price Forecast is sufficient.

Projected High Price is where my study really diverges from MS: $511 vs. their $1,135.

*—Publishing in arrears as I’ve been doing one daily stock study while posting only two blogs per week.