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Earnings Estimates Moving Higher for Netflix (NFLX): Time to Buy?

Zacks Equity Research
·2-min read

Investors might want to bet on Netflix (NFLX), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

Analysts' growing optimism on the earnings prospects of this internet video service is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- has this insight at its core.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Netflix, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The earnings estimate of $2.74 per share for the current quarter represents a change of +74.52% from the number reported a year ago.

Over the last 30 days, seven estimates have moved higher for Netflix compared to no negative revisions. As a result, the Zacks Consensus Estimate has increased 41.38%.

Current-Year Estimate Revisions

The company is expected to earn $9.62 per share for the full year, which represents a change of +58.22% from the prior-year number.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for Netflix. Over the past month, 13 estimates have moved higher compared to one negative revision, helping the consensus estimate increase 5.82%.

Favorable Zacks Rank

The promising estimate revisions have helped Netflix earn a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Netflix shares have added 12.8% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.


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