A dramatic analyst call on Netflix is buoying the already-high-flying stock—and catching sharp criticism from one bearish Wall Street analyst.
Netflix shares rose to an all-time high on Tuesday, after a massive upgrade from Bank of America Merrill Lynch. The analysis team, led by Nat Schindler, upgraded the stock from underperform to buy, and raised its price target from $350 to $722.
But for Michael Pachter, the Wedbush analyst covering Netflix, the call brings to mind everything that's wrong with modern stock analysis.
"The sell-side has been denigrated to an institution that simply tells you which direction a stock has been moving. They're momentum players," he said in a phone interview with CNBC. "All that you need to do to value a company as a sell-side analyst is look at a stock chart."
In addition to more than doubling his price target, the newly bullish Bank of America Merrill Lynch analyst also increased his 2016 earnings estimates from $1.96 per share to $4.32, based on "improved marketing and content costs from global original content licensing."
And in fact, even though the new price target implies another 28 percent of gains for the stock that is already the S&P's best 2015 performer by a mile, the BofAML team's note clarifies that they "see further upside to this newly raised price objective."
But for Pachter, the bulls are missing something very fundamental about the Netflix story: Content costs are set to increase dramatically, because media companies won't allow Netflix to use their content to reap massive rewards, particularly when competing services like those from Hulu and Amazon abound.
"They're going to have to pay up, and they will not be compensated by subscriber growth. People are discounting that competition effect," he said.
Pachter has long held an underperform rating on the stock, and currently has a 12-month price target of $270—which he admits "will be wrong, because it's not unraveling in a year."
But Pachter maintains that Netflix shares are "worth $270, not $700. If you want to pay $700 for it, go ahead."