2 Catalysts For Disney's Underestimated Growth

Shares of Walt Disney Co. DIS has risen 5.41 percent year-to-date.

Vasily Karasyov of CLSA Americas has initiated coverage of Disney with an Outperform rating and price target of $114.

CLSA’s analysis shows that the Street is underestimating the company’s earnings for FY16 and FY17

Karasyov believes that Walt Disney is likely to deliver upside earnings surprise for FY16 and FY17, driven by its Film Studio and Consumer Products licensing businesses, mentioning that since the beginning of FY13, “these businesses drove US$1.54bn of the US$2.11bn total upside surprise.”

The Consumer Products licensing segment is expected to grow its global market share of the entertainment/characters category from an estimated 46 percent in FY15 to 53 percent in FY16. “We don’t believe this is aggressive given the combination of Disney’s properties and global distribution infrastructure,” Karasyov stated.

In addition, Walt Disney’s EPS growth to moderate in FY17, while reaccelerating in FY18, given that the film and consumer products businesses are not expected to make any further market share gains beyond FY16, while the new NBA contract costs are expected to raise programming costs in FY17.