Netflix shares reach all-time high, Blockbuster up

LOS ANGELES (Reuters) - Shares of Netflix Inc (NFLX.O) climbed more than 9 percent to a new all-time high on Monday, after an analyst described the online movie rental service's financial forecast as "conservative" and raised his price target.

Piper Jaffray analyst Michael Olson raised his price target on Netflix to $40 from $36 and told clients to expect growth in the company's market share and DVD-by-mail business in 2008.

Olson based that move on "market share gains from Blockbuster, expectations for continued growth in DVD by mail and our belief that the Blu-Ray format will be successful at replacing standard DVD."

The Los Gatos, California company's all-time high on a split-adjusted basis was $38.83, reached on January 22, 2004, a Netflix spokesman said.

Netflix's stock traded as high as $39.65 on Monday, a 79 percent increase since January 15, when it began climbing on better-than-expected results, a string of analyst upgrades and the company's own raised fiscal year and quarterly forecasts.

Shares of rival Blockbuster Inc (BBI.N) also jumped as much as 9 percent on Monday on what analysts was a rosier investor outlook for the struggling video rental chain.

JP Morgan analyst Barton Crockett, who rates Netflix "neutral" and Blockbuster "overweight," said both companies were seeing a silver lining in the economic downturn.

"Video rental is cheap entertainment that people are turning to when their budgets are tight," Crockett said. "All the data that we see suggests that video rental is reasonably healthy right now."

Crockett and Wedbush Morgan analyst Michael Pachter, who recommends buying both stocks, both noted that Blockbuster recently has been presenting its case for profitability to the investor community and may be making headway.

"Blockbuster is articulating a story that they can really show robust earnings growth by improving their store opportunities," Crockett said.

"They are sounding confident ..., throwing out (earnings before interest, taxes, depreciation and amortization) numbers like $500 million in the next few years," Pachter said. "(The stock move) shows that they are winning people over."

Pachter attributed the run-up in Netflix shares to its renewed focus on profitability rather than subscriber growth, as well as a falling away of direct competition from Blockbuster and the bankrupt Movie Gallery Inc MOVIQ.PK.

Netflix rose $1.85, or 5.1 percent, to $38.09 on the New York Stock Exchange shortly before the close.

(Reporting by Gina Keating, editing by Richard Chang)