Super-bullish Netflix call draws analyst’s ridicule

Netflix jumps on upgrade

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."

That said, the analyst admits to feeling pressure to increase his targets as the stock flies higher.

"Every day I get calls from people like you and from investors, asking me if I'm ever going to throw in the towel on Netflix. Weaker people than I just give up," Pachter said. "But if you look up 'lemming' in the dictionary, you'll see that my picture's not there."

Tuesday on CNBC, Jim Cramer called the BofAML call "an extraordinary reversal."

"Let's just say, if you're want to eat crow, you might as well eat the tree of crows that we saw in the movie 'The Birds,'" Cramer quipped.

Read More Cramer: BofA Netflix upgrade is shocking

Bank of America Merrill Lynch did not immediately offer comment in regard to the allegations of momentum-driven flip-flopping.

Of course, on the trading desks of America, some are even more bullish than BofAML.

"Let's make the assumption that they can get to 150 million paid subscribers in five years [and that] they can move the [monthly subscription] price from $9.99 to $12. You throw in a 30 percent margin, normal tax rates, you're looking at roughly $4 billion in earnings. That's roughly $65 a share. On a 20 multiple, you're looking at a $1,300 stock," David Seaburg, head of equity sales trading with Cowen, said on CNBC's "Power Lunch."

"I'd rather be paying $570 than $1,300 in five years' time," he added.

But Pachter isn't convinced by such back-of-the-envelope math, nor by the stock's incredible 66 percent rise in 2015, which makes it the best S&P 500 performer by a mile.

"I'm Neo," he said. "It's hard to be the only person who sees the matrix."

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