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The $1 reason to keep buying Netflix, one of the S&P hottest stocks – MarketWatch


There’s been some fist-bumping among the Netflix faithful this week, as the video streamer’s “Roma” walked away with multiple honors at Hollywood’s Oscars.

While that critic’s favorite didn’t win best picture, some say it’s only a matter of time before the very here-and-now company grabs that top prize and busts down the doors of an age-old industry.

Investors, though, have had little to complain about given red-hot shares of Netflix

NFLX, +0.25%

up 32% so far this year and the second-best gainer on the S&P 500, just behind GE

GE, +6.39%

 . To be sure, some out there have altitude sickness given the upward trajectory of this market, and sizzling performances by companies like Netflix.

But wipe the sweat off your brow. Our call of the day from Piper Jaffray research analysts Michael Olson and Yung Kim offers up a $1 reason to keep believing in and buying the streaming giant.

As you’ll recall, earlier this year, the company announced it was raising subscription prices by between 13% and 15% for 58 million U.S. subscribers, boosting the cost of its most popular plan to $13 from $11.

Piper surveyed 1,100 international Netflix subscribers, and found 50% would be willing to pay more than $1 a month more for the service. “A $1/mo increase in international ASP (average selling price) would have a dramatic effect on our 2020 estimates, all else equal,” they said.

Crunching the numbers, they say that lift could mean 40% upside for shares to over $500 even if just half of the uplift to earnings per share went through. They reiterated an overweight rating and a $440 price target. (By the way, they also think the other 50% who said they wouldn’t pay more, would probably eventually pay if push comes to shove.)

Read: When investors make mistakes, this manager pounces and profits

Netflix shares closed at $363.91 on Monday, so clearly, there’s some ways to go if Piper’s target is at all accurate. Of course, some worry that it’s taking a gamble, considering competitors like Hulu responded pretty quickly with a price cut. The analysts said they will be watching for more negative backlash from U.S. subscribers, whose numbers grew in the most recent reporting quarter, though that was before the announcement of the price hike.

Netflix is a core member of the FAANG gang, which includes Facebook

FB, +1.69%

 , Amazon

AMZN, +0.09%

 , Apple

AAPL, +0.73%

 and Google parent Alphabet

GOOGL, +0.07%

 , well ahead of the pack over the last year when it comes to share gains.

Opinion: How a new crop of tech IPOS may steal sentiment from FAANG stocks

The market

Some steam looks to be coming out of the market as trade euphoria fades and investors gear up for data and comments from Fed Chairman Jerome Powell, who is headed to Capitol Hill. Dow

YMH9, -0.30%

 , S&P 500

ESH9, -0.15%

 and Nasdaq

NQH9, -0.28%

 futures are lower, after Mondays’ action, which saw the Dow

DJIA, +0.23%

 , S&P 500

SPX, +0.12%

 and Nasdaq

COMP, +0.36%

all squeak by with gains.


CLJ9, +0.38%

 is trying to recoup some of Monday’s losses, while gold

GCJ9, -0.27%

 is down and the dollar

DXY, -0.08%

is softer, largely against the yen

USDJPY, -0.17%

 and the pound

GBPUSD, +0.7177%

, soaring on Brexit headlines.

Read: As Brexit clock runs, the pound is only priced for a ‘soft’ split

Asia stocks pulled back and even China

SHCOMP, -0.67%

 gave up gains. Europe stocks

SXXP, -0.15%

 are largely down.

The economy

It’s a big week in data with a glut of reports due to be released after being held up by the recent shutdown. For Tuesday, we’ve got housing starts, building permits, Case-Shiller home prices, consumer confidence and new home sales.

At around 9:45 a.m., Fed Chairman Powell will appear in front of members of Congress, where he should be welcomed with open arms for that dovish policy switch.

Read: Yellen says POTUS has no grasp of macroeconomic policy

The chart

“Little or no upside.” It’s a bit cheerless, but that’s what strategist Barry Bannister at broker Stifel Nicolaus thinks of the S&P 500 right now. Our chart of the day comes from a batch he sent to clients laying out that case.

As Bannister explains the S&P can’t go much higher because it isn’t going to get much help from the earnings department — the price-to-earnings ratio for companies is being capped by positive real rates and earnings are slowing sharply.

“The real fed funds [rate] is 0.6%, implying an S&P 500 trailing, 12-month p/e [ratio] of 17 times,” he said, adding that they see 2019 EPS of $162 plus 5% year-over year versus Wall Street expectations of around $167. Crunch all that together and he says the S&P 500 looks fully priced at around 2,750, which is equal to 17 times their EPS forecast for this year of $162.

To be sure, the S&P 500 has been struggling to hit a key resistance level of 2,800, which it tapped for the first time since early November on Monday, but got slapped down.

Since the corrections started last Oct, this is the third time that the S&P touched the 2800 area. Will it be able to scare bears the third time? pic.twitter.com/YcGwRppIbO

— Irene🕊 (@goldmarketgirl) February 25, 2019

The buzz


TSLA, +1.38%

 is taking a hit after a judge ordered CEO Elon Musk to be held in contempt of court over a tweet he sent in mid-February detailing production rates that drew the ire of the SEC. In true Musk fashion, he aimed to get the last word: “SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing …”

The SEC asked a Manhattan federal court to hold Elon Musk in contempt, saying his recent tweet violated the terms of his settlement https://t.co/3FOV98iTg5

— The Wall Street Journal (@WSJ) February 25, 2019

Home Depot

HD, -1.25%

 is down on results, while AutoZone

AZO, -2.42%

 is up on an earnings beat. Macy’s

M, +1.25%

 will also report with Mylan

MYL, -0.93%

  due after the close.

Home Depot and Lowe’s earnings: Same-store sales complicated by shutdown, weather

Reporting late Monday was Etsy

ETSY, +4.13%

 , Mosaic

MOS, +1.46%

 and Hertz

HTZ, +2.77%

 , whose shares are all up on after upbeat results. Shake Shack

SHAK, -1.21%

 , Tenet Healthcare

THC, +0.25%

 also reported.

Opinion: Why buying Walmart stock over Amazon is a better bet now

As auto-trade tensions simmer between the U.S. and Europe, Peugeot says it’s returning to Stateside after a long absence.

It isn’t just Powell who’s headed to D.C. today, CEOs from big drug companies such as AstraZeneca

AZN, +1.37%

AZN, -1.73%

 , Bristol-Myers Squibb

BMY, -0.65%


MRK, -0.48%

 and Pfizer

PFE, +0.28%

 will face down the Senate Finance Committee over accusations of too-high drug prices.

The price ppl pay for Rx drugs is complex+covered in secrecy There’s plenty of room for transparency+improvement at every part of the supply chain b4 drugs reach patients That’s why we are having a series of hrgs on the issue in the Finance Cmte Tmrw is the 2nd this Congress

— ChuckGrassley (@ChuckGrassley) February 25, 2019

POTUS should be touching ground in Vietnam later on Tuesday for his second summit with North Korea’s Kim Jong Un, though it’s unclear what will constitute a ‘win’ this time.

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