Pachter makes a simple but compelling case that Netflix - as well as Blockbuster (BBI) - will benefit significantly from the “likely” bankruptcy of Movie Gallery (MOVI). He notes that Movie Gallery could close as many as 1,100 rental stores, leaving $600 million to $900 million in annual video rental revenue “up for grabs.”
He also thinks that Blockbuster will raise pricing in 2008 on its Total Access plan, which in turn would give Netflix room to raise prices. On the assumption of faster growth and higher pricing, he raised his 2008 EPS estimate to 90 cents, from 51 cents. His rating jumps to Buy from Hold, and his price target increases to $30 from $18.
BBI vs. MOVI vs. NFLX 1-yr chart: