Netflix Stock Higher Despite Analyst Downgrade Ahead of Earnings

Netflix is slated to report its second-quarter earnings after the close today

Managing Editor
Jul 16, 2018 at 9:55 AM
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Shares of streaming powerhouse Netflix, Inc. (NASDAQ:NFLX) are higher in early trading, despite the stock receiving a downgrade to "underperform" from "neutral" at Buckingham Research. Netflix is slated to report its highly anticipated second-quarter earnings today after the market closes, but analyst Matthew Harrigan said the FAANG concern will underperform Wall Street's high expectations. However, Buckingham increased its NFLX price target to $333 from $301.

This fresh bear note is not the only analyst attention Netflix stock has seen. In fact, Citigroup joined the skeptics by saying a strong U.S. dollar could weigh on the company's third-quarter guidance. On the other side, both Susquehanna and SunTrust Robinson lifted their price targets to $415 from $270. From a broader perspective, 19 of the 33 analysts covering NFLX sport "buy" or better recommendations.

Looking at the charts, Netflix stock has been an outperformer and last touched a fresh record high of $423.21 on June 21. Further, the stock's March-through-May pullbacks were contained by the 50-day moving average, guiding the streaming concern to its current 150% year-over-year lead. At last check, the shares were up 1.7% at $402.55.

Digging into options data, traders have been leaning bullish towards the FAANG stock, with data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) showing NFLX with a 10-day call/put volume ratio of 1.52, ranking in the 74th annual percentile. This shows that calls have been purchased over puts at a faster-than-usual clip during the past two weeks.

What's more, NFLX has consistently rewarded premium buyers over the past year. This is based on its elevated Schaeffer's Volatility Scorecard (SVS) reading of 85 (out of a possible 100), which indicates the equity's has tended to make outsized moves compared to what the options market was expecting.

Looking back, Netflix stock has moved higher the session after earnings in five of the past eight quarters -- including impressive one-day jumps of 9.2% and 10% after the two most recent releases. On average, the shares have swung 9.1% in the subsequent session over this two-year time frame, regardless of direction. This time around, the options market is pricing in a 13.3% move for tomorrow's trading.

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