Credit: Shutterstock photoWhat's Happening
Netflix ( NFLX ) is the first FAANG stock to report this earnings season, with fourth-quarter numbers due January 17. The company will release its quarterly numbers after the market close with the consensus calling for earnings of $0.25 per share. During the same period last year the company earned $0.41 and the stock is down 15.7% since the beginning of July.
Technical Analysis
NFLX was recently trading at $335.72 down $87.49 from its 12-month high and $122.37 above its 12-month low. InvestorsObserver's Stock Score Report gives NFLX a 90 long-term technical score and a 96 short-term technical score. The stock has recent support above $231 and recent resistance below $360. Of the 28 analysts who cover the stock 17 rate it Strong Buy, 3 rate it Buy, 7 rate it Hold, 0 rate it Sell, and 1 rate it Strong Sell, NFLX gets a score of 79 from InvestorsObserver's Stock Score Report.
Analyst's Thoughts
After three incredibly strong years of gains, NFLX hit a ceiling and started to trend lower in July as weakness started to hit all of the FAANG stocks. The company has posted better than expected earnings each of the last two quarters, but in both cases, sales have been just shy of analyst estimates. Netflix was one of the strongest stocks in recent years, but the strength pushed the valuation a bit too high. With the high valuation, the market was quick to drive the stock lower on any sign of weakness. The stock's valuation remains a concern. NFLX trades at 120 times earnings, and 80 times forward earnings. With shares still priced for perfection the company needs to hit all of its estimates and show gains in subscribers. The company has forecast 9.4 million new subscribers globally, and that will be a key number to watch for. Netflix has done a great job expanding into new international markets, and its focus on building a strong lineup of original programming has led to better than expected subscriber growth domestically. The stock will move in reaction to the company's top and bottom line numbers, but the real catalyst for the post-earnings move will be what the market reads into the company's subscriber numbers.
Stock Only Trade
If you're looking to establish a long stock position in NFLX consider buying the stock under $338. Sell if it falls below $312 or take profits if it gets to $389.Bullish Trade
If you want a bullish hedged trade on the stock, consider a 3/15/19 245/250 bull-put credit spread for a $0.45 credit. That's a potential 9.9% return (57.3% annualized*) and the stock would have to fall 26.1% to cause a problem.
Bearish Trade
If you want to take a bearish stance on the stock at this time, consider an 3/15/19 425/430 bear-call credit spread for a $0.40 credit. That's a potential 8.7% return (50.4% annualized*) and the stock would have to rise 26% to cause a problem.
Covered Call Trade
If you like the stock but wish to lower your cost basis on a new position, you may want to consider a 3/15/19 $335 covered call. Buy NFLX shares (typically 100 shares, scale as appropriate), while selling the 3/15/19 $335 call for a debit of $307.99, per share. The trade has a target assigned return of 8.8%, and a target annualized return of 50.8% (for comparison purposes only).The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Originally published on InvestorsObserver.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
