Talk About Lousy Timing for a Netflix Analyst Price Target Downgrade

There is never a good time for a stock to be on the losing end of an analyst downgrade or a sinking price target adjustment, but the worst possible scenario has to be just before the publicly traded company steps up with fresh financials. This happened on Monday, with Oppenheimer slashing its price target on Netflix (NASDAQ: NFLX) from $120 to $100. The leading premium streaming platform reports its second-quarter results on Thursday afternoon.

Wall Street pros aren't perfect. They are human, and not just because they have a tendency to aim lower on earnings projections more often than not. However, knocking down a price target instead of waiting for the actual numbers to come out three days later is intentional. Oppenheimer didn't want to enter earnings season with a higher price target. It might not be a big deal, but let's zoom in for a closer look.

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Be kind, rewind

It's worth noting that Oppenheimer's senior internet analyst, Jason Helfstein, also lowered Netflix's price target three months ago. He slashed his price goal on the shares from $135 to $120 on April 17, the day after the platform's poorly received first-quarter release. It's worth noting that the adjustment occurred after the April report. The price target tweak is coming ahead of the performance report this time around.

Oppenheimer's April downward revision was attributed, in part, to the firm conceding that it had been too ambitious in modeling how a recent price hike could boost Netflix's performance. This week's markdown is slightly more optimistic, despite the price target receiving a $20 haircut.

Oppenheimer's Helfstein argues that the stock's historically low earnings multiple is baking in the near-term pressures in advertising and consumers shifting to lower-priced subscription tiers. It still sees upside in Netflix stock, especially if it can address recent challenges. He is sticking with his firm's bullish outperform rating on the shares. Even at the new $100 price goal, that represents a healthy 36% of upside from where Netflix entered the new trading week.

Shares of Netflix have tumbled 40% over the past year, with the lion's share of that happening in the last three months. The stock is trading for just 20 times forward earnings, a historical bargain for a stock that has routinely commanded a premium given its sticky engagement, market dominance, and steady all-weather growth.

A major Wall Street analyst talking down a price target just days before a telltale quarterly update isn't a good look, but a closer look shows that it's just adapting to the new reality. As long as the revision still offers upside and a bullish stock rating -- and this checks off both boxes -- it's not as problematic as it might seem.

Your turn, Netflix.

Rick Munarriz has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.