Analyst Picks and Pans: NetFlix, Regions Financial, Gymboree

NetFlix (NFLX)

Janney Montgomery Scott reiterates sell

The departure of Starz Entertainment LLC CEO Robert B. Clasen could be bad news for Netflix Inc., according to one analyst.

Film studios hate the deal that Starz and Netflix inked last year, which gives Netflix the ability to stream movies directly to customers over the Internet only a year after their release, Janney Montgomery Scott analyst Tony Wible said in an Aug. 20 report.

And with Clasen leaving Starz, a unit of Liberty Media Corp., Wible said new management could come under renewed pressure from the studios to scrap the agreement or seek more favorable terms. That would not be surprising given the recent push-back from film companies, which worry rental services are cannibalizing DVD sales.

Most of the attention has fallen on Redbox, a subsidiary of Bellevue, Wash.-based Coinstar Inc., which provides DVD rentals for a $1 per night through vending machines. Major studios including General Electric Co.'s Universal, News Corp.'s 20th Century Fox and Time Warner Inc.'s Warner Bros. are demanding new releases stay out of Redbox kiosks for a certain period after they go on sale. Redbox has sued all three claiming antitrust violations.

Netflix faces a possible standoff with the studios as well. Warner Bros. said last week that it wants order-by-mail services to share revenue in return for delivery of new releases the day they go on sale.

With new management at Starz, the movie provider's titles "could become unavailable on (Netflix)," Wible said in his note Thursday. "But we believe it's more likely that we will see a push for a new pay-per-stream pricing model that would pressure Netflix's margin."

Regions Financial (RF)

Deutsche Bank downgrades to hold from buy

Regions Financial was downgraded by Deutsche Bank analyst Matt O'Connor on Aug. 20 because a recent surge in its share price brought it in line with expectations, and the regional bank could still face steep losses from commercial real estate exposure.

In a research note, O'Connor said Regions shares have surged 44% since he upgraded shares in May, significantly outperforming the broader banking sector. That rise brought Regions share price in line with O'Connor's trough tangible book estimate of $5.50 and just above his price target of $5.

Aside from the recent share price gains, O'Connor said Regions still could face large losses from its exposure to commercial real estate loans. "We continue to believe commercial real estate-related losses will be much higher than the market expects for banks overall," including at Regions Financial, O'Connor wrote in the note.

Despite concerns about potential loan losses, O'Connor said Regions Financial is in a strong enough capital position to handle any losses, so there is little chance the bank would need to raise additional money.

Gymboree (GYMB)

Oppenheimer upgrades to outperform from perform

Oppenheimer analyst Robert Samuels upgraded Gymboree on Aug. 20, saying that its Crazy 8 clothing stores division could double its store base and become profitable in 2010. Samuels also said Gymboree "seems to now be toying with the idea of international expansion" for Crazy 8.

The company's strong balance sheet and good stock value are "too compelling to ignore," he said.

"The (back-to-school) season seems to be starting off strong and, in classic GYMB style, we expect that the company will continue to come up with innovative and creative ways to drive traffic and offer compelling promotions," Samuels said.

Samuels raised his 2009 profit estimate for the company to $3.31 per share and for 2010 to $3.70 per share. Analysts polled by Thomson Reuters expect profit of $3.25 in the year that ends in January and $3.54 in the year that ends January 2011.

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