How to Trade Netflix After Post Warner Bros Wall Street Price Target Increases
A high-upside trade idea for the streaming giant as it approaches earnings.
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Jury Still Out on Whether Netflix Breaks Out
Streaming entertainment king Netflix (NFLX) underwent a flurry of analyst attention on Monday morning.
First, ahead of the opening bell in New York, the stock rallied. This was not due to a handsome upgrade at a major investment bank, but one from an analyst not really rated too well at TipRanks. Then came less spectacular reiterations by more highly rated analysts who work for other shops.
Let's take a look at the kind of Monday morning Netflix had. This comes after Paramount Skydance (PSKY) beat out (or did they really lose?) Netflix in the Warner Bros Discover (WBD) sweepstakes.
- Analyst Eric Sheridan of Goldman Sachs (rated at three stars out of five at TipRanks) upgraded NFLX from a "hold-equivalent" neutral rating to a "buy" while increasing his target price from $100 to $120.
- Analyst Barton Crockett of Rosenblatt Securities (rated at four stars out of five at TipRanks) reiterated his "hold" rating on NFLX while increasing his target price from $95 to $96.
- Analyst Brian White of Moness (rated at five stars out of five at TipRanks) reiterated his "hold-equivalent" neutral rating on NFLX. Moness did not set a target price on the stock.
The Chart
Readers will see that while the more highly rated analysts appear to be more cautious, the stock has been visibly doing better since losing the Warner Bros Discover deal. The shares that had been mired within the confines of a downward sloping Andrews' Pitchfork since last summer. After Paramount took the dubious Warner Bros trophy home late this past winter, the stock took back its 50-day SMA, which forced some portfolio managers to increase long-side exposure.
Last week, we saw NFLX break out past the upper trendline of the model as relative strength improved. Perhaps more importantly, the daily MACD is now postured bullishly. The histogram of the nine-day EMA has moved above zero as the 12-day EMA has crossed over the 26-day EMA with both of those lines running above zero as well. Now, the 200-day SMA (currently $107) becomes the upside pivot. If that line can be retaken, that would justify a target price close to $123. In my opinion, this validates the target price increase published at Goldman Sachs on Monday morning.
NFLX reports in 10 days, next Thursday.
Trade Idea (Minimal Lots)
- Purchase one NFLX April 17 (after earnings) $106 (near pivot) call for about $1.15
- Sell (write) one NFLX April 17 $114 call for roughly $0.30
Net Debit: $0.85
Note: The trader here is risking just the net debit of $0.85 to try to win back up to $8.00 for a max potential profit of $7.15... or as much as 841%.
Related: Why I'm Fading a 'Ceasefire Rally' as Trump's Iran Deadline Approaches
At the time of publication, Guilfoyle had no positions in any securities mentioned.
