4 Reasons Why Netflix's Stock Has Outperformed The Market

Shares of streaming giant Netflix Inc NFLX have outperformed the broader market, rendering its valuation less attractive. An analyst at Imperial Capital zeroed in four reasons for the strong showing.

The Netflix Analyst: David Miller downgraded shares from Outperform to In-Line but maintained the price target at $489, suggesting about 2.5% upside from current levels.

The Netflix Thesis: Netflix shares rallied 14.8% in the first quarter compared to the 20.6% drop for the S&P 500 Index, and thus far in 2020, the stock has jumped 50.2% as opposed to the 3.3% drop for the S&P 500 Index, Miller said in a Monday note.

1. Netflix, according to the analyst, is one of very few names in the S&P 500 Index that is for the most part impervious to any economic effects of COVID-19. The price point for each service iteration is mostly recession-resistant, and consumption of content is not communal, he reasoned.
2. The company doesn't have exposure to any assets in the media sector under secular threats such as cable networks, nor assets affected by COVID-19 such as theme parks or movie theaters, Miller said.
3. Miller noted Netflix has disproved "Street-group-think" that the launch of Walt Disney Co's DIS Disney+ in the fourth quarter would lead to market share erosion, forcing it to lower prices.
4. Finally, the analyst is of the view Netflix has efficiently differentiated itself from rival Disney+ in that "Disney+ is largely a myriad of American entertainment 'brands' exported globally, while NFLX is, for the most part, a smorgasbord of global shows from almost every country cross-pollinated all around the world."

Netflix Price Action: In pre-market trading Monday, Netflix shares were edging up 0.6% to $479.90.

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