The Zacks Analyst Blog Highlights: Netflix, BP Plc, Royal Dutch Shell plc, ExxonMobil and Chevron

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Jul 27, 2011, 09:30 ET

CHICAGO, July 27, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Netflix (Nasdaq: NFLX), BP Plc (NYSE: BP), Royal Dutch Shell plc (NYSE: NYSE: RDS.A), ExxonMobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX).

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Here are highlights from Tuesday's Analyst Blog:

Netflix Hyper-Growth Over?

Netflix (Nasdaq: NFLX) reported second quarter numbers after the close Monday that beat consensus EPS expectations of $1.11 by 15 cents, coming in at $1.26. But the company gave some third quarter guidance that was generally below the analyst outlook.

The stock had finished the regular session up nearly $5 (1.8%) to $281.53. In after hours trade, shares were down nearly $24, over 8% after disappointing on revenue expectations with $788.6 million vs. the view by the street of $791.5 million.

Hey-Days Over?

But the real damage was done by the guidance message from the company, which was basically one of a leveling-off in growth. After many quarters of rapid subscriber growth for its DVD postal and streaming services -- the company added 1.8 million subscribers in the most recent quarter to end June with 25.6 million -- it looks like the heydays are slowing down.

The company sees revenue of $780 million to $805 million for the current quarter, and EPS of 72 cents to $1.07 per share. Analysts had been looking for something closer $846.5 million and $1.10 EPS.

In addition to not being able to sustain that subscriber growth, the company commented on current subscriber discomfort with price increases, which could be rising as much as 60%. This may be a hyper-growth company about to experience its biggest challenge in continuing to sell its never-look-down story to investors.

Still Worth 60 Times EPS?

As of Monday's regular close near $280, the stock was trading at a forward P/E multiple of 60 times. This seems outrageously pricey to value investors, but when you consider the 50% annual earnings growth of the company based on the past year's results and current projections going into next year, you can see the appeal for momentum and growth investors.

We will know more about what these investors are willing to pay for that growth in the coming week as analysts chime in with their revisions to earnings estimates. In the past 90 days, full-year EPS estimates for 2011 had risen from $4.45 to $4.56 and 2012 projections rose from $6.33 to $6.70.

The Ten-Bagger That Got Away

These numbers are sure to come down and the highest of high flyers that was Netflix for the past two years may have a rough landing for the next few trading sessions as all this gets sorted out. Whether or not the party is over, it was an extremely profitable ride for investors who knew how to follow earnings momentum.

BP: Bottom-Line Lags, Volume Shrinks

BP Plc (NYSE: BP) has reported second-quarter 2011 earnings of $1.76 per American Depositary Share (ADS) – on a replacement cost basis, excluding non-operating items – well below the Zacks Consensus Estimate of $1.97. The underperformance resulted mainly from lower production volumes (including the impact of divestments) and higher costs (including rig standby costs in the Gulf of Mexico/GoM), which were partly balanced by higher oil and gas price realizations.

However, quarterly results were higher than the year-earlier adjusted profit level of $1.57. BP's revenue registered an impressive 37% improvement to $103,848 million in the quarter, handily beating the Zacks Consensus Estimate of $97,208 million.

Company Outlook

BP expects 2011 production to be in line with its prior forecast of around 3.4 million barrels of oil equivalent per day, with the exact outcome depending on the timing of acquisitions and divestments as well as production-sharing agreements (PSA) entitlement impacts.

For the upcoming quarter, the company expects refining margins to experience a typical seasonal decline. Again, BP expects its Texas City refinery to return to full capacity during August.

The company also expects its petrochemicals production volumes to improve sequentially following the recent full recovery of operations at Decatur, Texas City and Cooper River petrochemicals sites. The planned turnaround activity in the second half of 2011 is expected to be lower than the first half.

To Conclude

Management remains positive on the company's growth profile and looks forward to recovery as well as consolidation in order to reduce operational risk or oil spill-related assignments.

We see a slow but gradual economic recovery, focus on upstream exposures through the trimming of downstream operations and increases in oil prices as favorable for BP.

However, the company expects operational interruption in the GoM, the ensuing acquisitions and divestments, as well as seasonal ramp-up in turnaround activity to be reflected in the third quarter production.

While the GoM tragedy has affected BP's share performance, we expect the company to recover and hence, stick to our long-term Neutral recommendation. BP holds a Zacks #3 Rank (short-term 'Hold' rating).

BP's major competitor, Royal Dutch Shell plc (NYSE: RDS.A), ExxonMobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) are scheduled to report their second quarter earnings later this week.

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