Netflix shares have extended their decline, hitting levels not seen since August 2024. The stock has now fallen more than 54% from its record high, with the sell-off intensifying after the company's latest earnings report. Despite the sharp drop, Morningstar analysts remain optimistic, maintaining a fair value estimate of $80 per share, implying a potential upside of roughly 30% from current levels.
Morningstar's Bullish Case
Morningstar's analysts point to several catalysts that could drive a rebound. The upcoming launch of Netflix's ad-supported tier in 15 international markets is expected to fuel subscriber growth, similar to the pattern seen in markets where the tier is already available. Additionally, the company's churn rate has continued to improve both domestically and internationally, and price increases are expected to boost revenue.
In a recent note, Morningstar stated: "We maintain our $80 fair value estimate and narrow moat. A growth slowdown was inevitable, but Netflix remains far superior to its subscription streaming peers, and its valuation multiples are now very reasonable."
Valuation Metrics Suggest a Bargain
From a valuation perspective, Netflix appears attractively priced. The stock trades at a forward price-to-earnings ratio of 17, below the S&P 500's average of 19 and well under its own five-year average of 34. The forward price-to-earnings-to-growth ratio stands at 0.84, compared to the sector median of 1.15 and the five-year average of 1.37.
Analyst Caution and Risks
Despite Morningstar's bullish stance, other analysts remain cautious. Philip Securities downgraded the stock from a strong buy to a moderate buy, while Argus cut its price target from $120 to $95. Citigroup reduced its target from $100 to $85, and Piper Sandler lowered its target from $85 to $78. The average analyst target now stands at $89, down from $134 a year ago.
One key risk is the deceleration in revenue growth. Netflix reported $13.4 billion in third-quarter revenue, up 11.5% year-over-year. For the full year, analysts expect revenue to grow 13% to $51 billion, followed by a 10% increase to $56.6 billion in the next year. The bigger question is whether the company can continue adding subscribers in an increasingly saturated market, with competitors like Disney and Skydance vying for viewers.
Technical Outlook Points Lower
On the weekly chart, NFLX stock has been in a steep downtrend, falling from $133.9 in 2025 to around $61.8. The price recently broke below the key support level of $64.8, its July low, invalidating a double-bottom pattern. Additionally, the 50-week and 200-week moving averages are nearing a death cross, a bearish signal. The path of least resistance appears downward, with the next major support level at $50.
While Morningstar sees value, the technical picture suggests further downside may be possible before any sustained recovery. Investors will be watching whether the stock can stabilize at current levels or if it will test the $50 mark.
This article is for informational purposes only and does not constitute financial advice.
