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Broker tips: Netflix, WPP, EasyJet

By Iain Gilbert

Date: Tuesday 23 Jan 2018

Broker tips: Netflix, WPP, EasyJet

(ShareCast News) - Analysts at Morgan Stanley reiterated their 'overweight' recommendation on Netflix following the video streaming giant's latest quarterly update, lifting their target price on the stock to $275 in the process.
On the previous evening, the company announced a bigger-than-expected 8m increase in net subscriber additions for the three months to December to reach approximately 24m, even as it raised its prices.

Just as important, the investment bank said, viewing time per Netflix member jumped 9% in 2017, despite an already comparatively high base given how each member was, on average, already consuming approximately two hours' worth of content each day.

"Double-digit growth in engagement suggests continued opportunity for strong member growth even in mature markets. Churn is directly related to engagement, suggesting that this growth in engagement in mature markets will drive down churn and lift net additions," Morgan Stanley said.

On the back of all of the above, Morgan Stanley revised its forecast for the company's rate of net subscriber adds in 2018 from 21m to 23m, projecting that the total number of subscribers to its streaming services globally would rise to over 260m by 2025, excluding China.

WPP is facing flat revenue growth and margins in 2018, with a number of headwinds besides that led Credit Suisse to downgrade its rating on the stock to 'neutral' from 'outperform'.

Credit Suisse, which lowered its target price to 1,440p from 1,500p, said it had been wrong to give more weight to WPP's depressed valuation over its poor revenue momentum, even though it had remained cautious on the ad agency subsector.

Organic growth is seen as likely to remain under pressure with no relief seen in structural headwinds for ad agencies, with the Swiss bank predicting WPP will guide to flat revenue and margin in for 2018 while the average of analyst forecasts is for 1.3% sales and a 10 basis-point improvement in margins.

"We have not yet picked up evidence of broad-based FMCG recovery and see the disconnect between GDP, advertising and agency fees continuing," analysts wrote, also noting that the auto sector offers another contract risk this year, with Ford calling for a "marketing reset".

Separately, Credit Suisse upped its target price on shares of Easyjet following the budget carrier's first quarter update, highlighting to clients how pricing and momentum was set to continue into the second quarter.

With the company guiding towards a rate of growth in revenues per seat in the high mid-single digits at constant currencies and thanks to lessened competition on Easyjet routes after rivals Monarch, Air Berlin and Alitalia went bankrupt, the Swiss broker raised its forecast for the company's 2018 profits before tax pre-Air Berlin by 10% to £568m.

That was in comparison with a consensus estimate for £505m before the release of the latest set of quarterly figures from the company.

The Swiss broker also called attention on new Easyjet chief Johan Lundgren's new-found focus on data management, including via the creation of the chief data officer role.

Analyst Neil Glynn reiterated his 'outperform' recommendation on the shares and lifted his target price from 1565p to 1803p.


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