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JPMorgan Chase upgrades its rating to buy after Netflix's exit from the Warner Bros. deal
Investing.com - JPMorgan has resumed coverage of Netflix with an overweight rating and a target price of $120 after the costly studio acquisition battle that saw streaming giant Netflix withdraw.
Investors have recognized Netflix’s discipline in M&A. Since announcing the bid for Warner Bros. in December last year, Netflix’s stock has fallen over 18%, but it rose 24% within five days after exiting the bidding war. Currently, Netflix’s valuation is about 30 times the 2027 estimated EPS of $4.01, higher than its large tech peers. JPMorgan considers this premium reasonable given Netflix’s similar revenue growth and faster profit expansion.
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The company declined to match Paramount Global’s $31 per share offer for Warner Bros., stating the deal is no longer financially attractive.
Paramount agreed to acquire Warner Bros. for $110 billion, with the transaction expected to close in Q3 2026, at which point it will pay the $2.8 billion termination fee owed to Netflix.
The brokerage states that Netflix remains a healthy organic growth story, benefiting from global subscriber growth, pricing power, and an advertising tier still in early monetization stages.
JPMorgan expects operating margins to expand to 32% by 2026, with about 140 basis points of normalized leverage, and forecasts a CAGR from 2025 to 2028 of: revenue 12%, operating income 21%, GAAP EPS 24%, and free cash flow 22%.
JPMorgan projects 2026 revenue at $51.7 billion, near the upper end of the company’s 12%-14% growth guidance, with free cash flow of $11 billion, up 16%. The firm also expects share repurchases to increase in 2026, partly due to the $2.8 billion termination fee related to abandoning the deal.
JPMorgan notes that user engagement remains a key focus, with viewing hours increasing by 1% in the first half of 2025 and 2% in the second half, despite accelerated growth in original content to 9% in the latter half. The bank is optimistic about a strong content lineup in 2026 and the potential for price hikes in the U.S. later this year.
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