Netflix Inc. may have a “relatively” favorable position in the industry amid twin strikes by writers and actors, but its stock reflects too much “euphoria,” according to an analyst from Benchmark Research.
Benchmark’s Matthew Harrigan flagged Tuesday that Netflix shares
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were trading 36% above their 200-day moving average and 27% above their 50-day moving average, as he reiterated his sell call on them. The stock is up 53% on a year-to-date basis and ahead 136% over a 12-month span.
“Even with Netflix’s advantages as far as new content inventory and more significant overseas production not subject to the U.S. labor shutdown, it is conceivable 2024 growth could be dampened by prolonged strikes,” Harrigan wrote.
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He called out that the “level of mutual acrimony” between the striking parties seems to be “worsening” given pushback to high executive pay within the entertainment industry as well as the “unfortunate timing of the Sun Valley Allen & Company retreat coinciding with images of picket lines outside studio gates.”
Harrigan said that all studios would feel an impact if the strike resolution requires them to boost compensation for writers and actors related to streaming, but Netflix “could be especially impacted as the prime mover for the absence of residuals for streaming relative to linear.”
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Furthermore, he noted that the company doesn’t have live sports or news programming unlike many of its rivals, which could prove a disadvantage in “extended strike scenarios.”
Harrigan boosted his price target on Netflix shares to $293 from $250.
Netflix likely will share more information about how the strikes could impact its business when the company delivers second-quarter earnings after Wednesday’s closing bell.
A Wells Fargo analyst weighed in late Monday that Netflix shares seem “priced to perfection” ahead of earnings with “very high” expectations on the buy side, though he thought the shares would push through short-term concerns.
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Long-term investors may not be “deterred” by a perceived earnings disappointment relative to high expectations, even if shorter-term ones might drive the stock down in their initial response to results, Wells Fargo’s Steven Cahall wrote.
“[W]e think it will run again as [the third quarter] plays out so we’re buyers if it falls just after the print,” he continued.
Cahall had an overweight rating and $500 target price on Netflix’s stock.
This post was originally published on Market Watch
