Could a Federal Reserve pause or change Netflix (NASDAQ:NFX) becomes a sensation as disinflation kicks in? There is no way to know for sure what the US central bank will do. However, I am bullish on Netflix stock ahead of the company’s earnings report, as the company is cyclical, and when the US economy picks up, NFLX stock should recover considerably.
Netflix is known as the king of streaming companies, with a wide variety of original and legacy content. However, we cannot rule out competition in the streaming arena, and of course, economic challenges made it difficult for Netflix to thrive in 2022.
Still, next year could prove to be a big one for Netflix and its shareholders. Even as a cyclical business, Netflix has been identified as a “safety” name by at least one prominent analyst. The upside potential is still there though, as the end of the current rate hike cycle should put NFLX stock back in favor with investors.
Prepare for a profit increase with Netflix
It’s a good time to mark your calendar, as Netflix is set to report its Q4 2022 earnings data on January 19. Suffice it to say that Wall Street is not expecting much this time, and that is exactly why there is a relief rally. configuration in progress.
Impressively, Netflix has consistently beaten analysts’ quarterly earnings expectations since the third quarter of 2021; some of those beats also went by wide margins. However, analysts do not expect much from Netflix for the fourth quarter of 2022.
For that quarter, Wall Street believes that netflix earnings it will come in at just $0.58 per share. That’s a big drop compared to the previous three quarters, in which Netflix actually earned more than $3 per share per quarter.
Granted, the aforementioned challenges (competition, inflation, etc.) made it difficult for Netflix to grow its business by the end of 2022. However, should investors really believe that Netflix’s earnings per share dropped so drastically, from $ 3.10 in Q3 2022 to just $0.58 in Q4?
This, truly, is a relief rally waiting to happen. It takes guts to invest when expectations are this low, but that’s the gist of contrarian investing: buying before the crowd realizes they were wrong, or at least overreacted.
NFLX stocks could get an initial boost from disinflation
If any word was the buzzword of 2022, it was “inflation.” It’s still on people’s minds, but Print annualized CPI of 6.5% for December it should give anguished NFLX shareholders the idea that, as the old saying goes, this, too, shall pass.
As economists had predicted, the US inflation rate declined from 7.1% in November to 6.5% in December. Indeed, inflation has been falling steadily for months, but the market appears to be pricing in a hyperinflationary future for the United States in NFLX shares.
Seems like forever ago, but Netflix stock traded at $500+ just a year ago; now it is between $300 and $300. Don’t be scared off by a deep discount on a big name like Netflix, and be grateful for the chance to buy company stock when it becomes available. The P/E ratio is 29.6x (It’s been much higher than that when apparently everyone on Wall Street loved NFLX stock.)
That valuation multiple could go much higher if the Federal Reserve reins in interest rate hikes. This won’t happen tomorrow or next week, but inflation is cooling and the Fed could engineer a “soft landing” for the economy in the coming months.
At the same time, NFLX stock could actually be seen as a crisis hedge. At least, that’s what Jefferies says. five star analyst Andrew Uerkwitz seems to be hinting, as he stated, “With a potential recession looming, we’re looking for safety and names that have reduced downside risk” by recommending Netflix stock.
It is interesting to consider that a cyclical business could also be considered a safe haven. In any case, Uerkwitz assigned an ambitious $385 price target to Netflix shares; Now, let’s see what analysts expect from this stock.
Is NFLX Stock a Buy, According to Analysts?
Going back to Wall Street, NFLX stock is a Moderate Buy based on 15 Buy, 14 Hold and three Sell ratings. He Netflix average price target it is at $308.81, which implies a downside potential of 7.2%.
Conclusion: Should You Consider Netflix Stock?
Netflix deserves the consideration of tech investors with a contrarian approach, as a change in central bank policy could catalyze NFLX shares higher. Even before that happens, Netflix’s upcoming earnings event offers a prime setup for a positive surprise. With these considerations in mind, investors should definitely take a bullish stance on Netflix stock now.
