Shares of Netflix (NFLX) reached a new high of 63 on Jan. 28. That gain—more than $12 in one day—came as the company announced it added 1 million customers in the fourth quarter. The movie subscription service also reported fourth-quarter earnings of 59 cents per share, topping the average estimate of 44 cents, and CEO Reed Hastings said Netflix is expected to continue to grow "rapidly and profitably" in 2010.
The news prompted a spate of upgrades from analysts. A report from JPMorgan (JPM) noted that the company will benefit from an improving U.S. economy and predicted the stock would climb to 70 by the end of 2010. But the long-term outlook for Netflix depends on how the shift to digital streaming affects the company, which was founded in 1977. In 2009's fourth quarter, 48% of its 12.3 million couch-surfing subscribers streamed video. Morgan Stanley analysts think shares could rise as high as 68. Online competitors Hulu and YouTube, as well as rivals with DVD kiosks, like Redbox, remain threats.
When a company's earnings miss Wall Street forecasts, its stock usually slips. Over the long term, though, those stocks may be better investments than shares of companies that avoid missing the estimates through fancy accounting footwork. To see which group performs better, Paul Hribar, an accounting professor at the University of Iowa's Tippie College of Business, separated companies into two camps. One group of 1,367 companies missed earnings-per-share (EPS) projections by a penny while maintaining their usual expenditures. The other 2,099 beat their EPS numbers by a cent, but only after adjusting their accounting reserves or cutting outlays on R&D or advertising. On average, the near-miss companies outdid the overall market by 30% over the next three years, while the forecast-beaters lagged the market by 10.3%.
In 2009, the number of U.S. companies decreasing dividends was the highest since 1955. According to Standard & Poor's (MHP), 804 companies reduced payouts by a total of $58 billion. Looking ahead to 2012, analyst estimates of S&P 500 dividends per share show a projected 18% rise, data compiled by Bloomberg show. Among individual stocks, Johnson & Johnson (JNJ), which has a 3.1% dividend, will likely raise it to 3.3% in April, and Abbott Laboratories (ABT) may lift its dividend in March to 3.3%, from 3%, data show. Matthew McCormick, a fund manager at Cincinnati's Bahl & Gaynor Investment Counsel, recently bought shares of both J&J and Abbott on speculation that investors will favor stocks with consistent earnings.