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The stock market had a sunny day on Thursday as the S&P 500 index gained 1.8% and the Nasdaq Composite bolted 2.5% higher. However, Netflix (NFLX 1.29%) left the broader market far behind, closing the trading session 5.1% higher. The digital-media veteran can pin this amplified jump on a rare double upgrade from a Wall Street analyst firm.
Analyst Kenneth Leon, from the market research firm CFRA Research, upgraded Netflix shares all the way from sell to buy, lifting his price target for the stock from $225 to $310 per share.
Leon’s reasoning rests on a deeply entrenched business moat, as rivals will have a hard time catching up to Netflix’s profitable growth on a global scale. Furthermore, the new ad-supported subscription plan and password-sharing crackdown efforts should support Netflix’s subscriber counts and revenue streams in the long term.
Leon’s argument echoes comments made by Netflix’s management in the last earnings report. The filing noted that leading competitors such as Walt Disney and Amazon Prime Video are building their audiences quickly, but “they are all losing money, with combined 2022 operating losses well over $10 billion, vs. Netflix’s $5 [billion] to $6 billion annual operating profit.”
CFRA Research’s analysis isn’t exactly original, but it’s good to see independent voices supporting the company’s official assumptions and findings. Leon’s bullish takeaway makes perfect sense, though I would set a more generous target price as Netflix’s stock seems to be spring-loaded for massive gains in 2023.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Amazon.com, Netflix, and Walt Disney. The Motley Fool has positions in and recommends Amazon.com, Netflix, and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
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