Trefis Top 5 – May 19 Insights (LNKD, NFLX, LOW, BCS, LXK)

Today we launched coverage on LinkedIn (NYSE:LNKD) with a price estimate of $30 and discussed the fundamental drivers to its business. Its stock promptly shot up to $100 and closed around $94. We also highlight the Netflix (NASDQ:NFLX) subscriber growth rate necessary to justify its current stock price after Barron’s carried an article highlighting one Wall St. analyst’s forecast. Lowe’s (NYSE: LOW) is looking to rebound in 2011 after a tough couple of years based on do-it-yourself repairs, a recovery in the overall economy and growing demand for LED lighting. Barclays (NYSE:BCS) is focusing its Barclayscard on emerging market growth which will help sustain strong sources of revenue, and finally we touch on Lexmark’s (NYSE:LXK) market share outlook for the enterprise market which is a key driver to its stock value.

LinkedIn’s Valuation as Facebook of Recruiting Hard to Justify

LinkedIn’s (NYSE:LNKD) stocked opened at $83 after its IPO was priced at $45 and is now trading around $100 implying that those select few investors that received stock allocations this morning are sitting on capital gains in excess of 100% on the first day of trading! Trefis launched coverage earlier today with a price estimate of $30 based on discounted cash flows, which we break down below. [1] The company competes with Monster (NYSE:MWW) in the recruitment services market, as well as social networking portals like Facebook and Twitter. The company also faces competition from Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO) in the online advertising market.

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Netflix Subscriber Growth Needs to Skyrocket to Justify Stock Price

A recent article in Barron’s cited a Netflix (NASDQ:NFLX) forecast by Citigroup (NYSE:C) analyst Mark Mahaney who predicts that the company’s subscriber base will pass 50 million by 2013. ^[1] This rosy forecast implies around 25% upside to our current stock price estimate of $153 for Netflix, which would put it still 20% below the current market price. By our estimates, we need sub growth to hit near 70 million by 2013, to reach the current market price. We think this unlikely given that competition should intensify over time from giants like Google’s (NASDAQ:GOOG) announced plans to launch a paid streaming service via Youtube and Android-based devices as well as discussions about Apple’s (NASDAQ:AAPL) plans to move into streaming.

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Lowe’s Looks to Hardware, LED to Light up ’11 Sales

Lowe’s (NYSE: LOW) gained considerable market share at the expense of Home Depot (NYSE:HD) over the last ten years. However, Home Depot has taken several initiatives to consolidate its position. As a result, competition between these two players will remain intense in the coming years. We note Home Depot’s results were better than Lowe’s for Q1 ’11 and fiscal year 2010. As Lowe’s looks ahead, the company hopes that improvements in its hardware & seasonal division will pick up as the economic improves, in part driven by rising demand for LED lighting and online sales.

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Barclaycard Asset Base Likely to Grow by More Than 6% Annually

After the major setback to its operations during the global economic downturn of 2008, Barclays (NYSE:BCS) has been focusing its efforts to ensure stable and sustainable sources of revenue. While it has been diversifying its operations globally in developing markets like India, China and the Middle East, it is also strengthening its core operations. These primarily include its banking and credit/debit card businesses. The London-based global bank competes with other worldwide banking institutions and financial services group like Citigroup (NYSE:C), The Royal Bank of Scotland Group (NYSE:RBS), Bank of America (NYSE:BAC), UBS (NYSE:UBS) and JPMorgan Chase (NYSE:JPM).

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Lexmark is Banking on the Enterprise Market

Lexmark (NYSE:LXK) has continuously lost market share in the laser printer market due to slowing printer hardware industry and increased competition from market leader HP (NYSE:HPQ) and other players Xerox (NYSE:XRX), Canon (NYSE:CAJ), and Kyocera (NYSE:KYO). Moreover, increased digital consumption of information through mobile devices like e-readers and tablets has reduced the usage of paper. This trend of digital content consumption may adversely affect Lexmark’s printer & cartridges sales. While we estimate Lexmark’s laser printer market share will gradually rise to 4% by the end of our forecast period, Trefis members predict a slightly higher share of 4.6%, translating into just under 10% upside to our LXK stock price estimate.

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1. Netflix: Citi Says Buy, 50M Subs By 2013, Barron’s, May 2 2011 [↩]