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Brand Face-Off: Netflix, Inc. (NFLX) vs. Outerwall Inc (OUTR)

Between NFLX and OUTR, which at-home video service looks better on the stock charts?

by 4/30/2014 2:17:35 PM
Stocks quoted in this article:

There are now plenty of ways to get televised entertainment to enjoy within the comfort of your own home. Netflix, Inc. (NASDAQ:NFLX) was at the forefront of this trend, launching at-home DVD delivery, followed by streaming content, then original programming such as Orange is the New Black.Taking a more traditional, yet updated, approach, Outerwall Inc (NASDAQ:OUTR) offers low-priced DVDs, Blu-ray Discs, and video games for rent via a network kiosks in the U.S. and Canada. Outerwall's Redbox brand also has a streaming video plan via Verizon Communications Inc. (NYSE:VZ), and the company still maintains its network of Coinstar machines in four countries, plus Puerto Rico. So the businesses have many similarities, but which stock looks better at the current juncture?

Technicals

During the last three months, Outerwall has slightly outperformed the S&P 500 Index (SPX), on a relative-strength basis, while Netflix has lagged the broader-market measure by more than 26 percentage points. Although Netflix -- perched at $313.25 -- sustains a year-over-year gain of roughly 46%, it has dropped nearly 15% in 2014, and has depreciated more than 31% from its all-time peak of $458 hit on March 6. The stock slipped beneath previous a previous level of support at its 120-day moving average about a month ago, and was recently rebuffed at this trendline, which has seemingly reversed roles to act as resistance.

Daily chart of Netflix, Inc. (NFLX) since July 2013 with 120-day moving average
Chart courtesy of StockCharts.com

OUTR shares, however, are maintaining their long-term uptrend. The stock is little changed year-to-date at $68.77, but has gained almost 56% off of its October 2012 low of $44.10. Throughout much of this rally, the stock has benefited from support at its 40-week moving average.

Weekly chart of Outerwall Inc (OUTR) since June 2012 with 40-week moving average
Chart courtesy of StockCharts.com

Sentiment Indicators

Although times have been tough for NFLX shares of late, the bearish bandwagon is far from crowded. For example, the stock's short-interest ratio of 1.1 implies that it would take just over one trading day (at the stock's average daily volume) to exit all existing shorted positions. Also, the stock's 20-day put/call volume ratio tracking buy-to-open activity on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) resides at 0.95, meaning calls have been bought to open at a slightly faster pace than puts during the last month.

The picture is quite different for OUTR shares. More than one-third of the stock's available float has been sold short, resulting in a short-interest ratio of 10 days to cover. Outerwall's own ISE/CBOE/PHLX 20-day put/call volume ratio of 5.52 reveals that 5.5 puts have been bought to open during the past month for every call. A change of heart among short sellers or option bears could help fuel future gains in the stock.

Earnings History

Netflix, Inc. (NASDAQ:NFLX) has topped analysts' earnings estimates in seven of the past eight quarters, by an average margin of 7 cents per share. Outerwall Inc (NASDAQ:OUTR), meanwhile, has surpassed the Street's consensus view in the past seven reporting periods, by a 27-cent margin (on average).

Outerwall is scheduled to report its first-quarter results after the close tomorrow. Analysts are expecting a per-share profit of 93 cents, on par with last year's results. Following its last two reports, OUTR shot higher by 4.3% and 12.2% in the subsequent session, respectively. Another positive turn in the earnings confessional could shake loose some of the aforementioned bears, and solidify Outerwall as the winner of this Brand Face-Off.

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