Credit Suisse Brushes Off Disney's ESPN Concerns

• Walt Disney Co DIS shares have declined 20.64 percent over the past three months, touching a low of $88.85 on February 10.
• Omar Sheikh of Credit Suisse has reiterated an Outperform rating on the company, with a price target of $130.
• Although investors are focused on a slowdown at ESPN, although if one looked at the datapoints, it was difficult to find evidence of any such slowdown.

Analyst Omar Sheikh also pointed out that Walt Disney had “assembled a portfolio of assets that should sustain growth for years to come,” while the company’s overall annualized revenue growth was 9 percent, with annualized operating income growth of 14 percent.

With regard to ESPN, Sheikh noted that while domestic subscribers declined again in Q1, the rate of declined improved sequentially, as compared to the FY2015 rate, while subscriber growth has been witnessed since the end of the quarter.

On the other hand, advertising growth came in at an underlying 1 percent for the quarter, while scatter pricing continued to be very strong and the upfronts outlook improved meaningfully.

Operating income increased 8 percent, ex-sports cost phasing and FX.

“he success of investments made in Pixar, Lucasfilm, Marvel and in the domestic parks is coming through strongly,” Sheikh mentioned, while pointing out that the annualised operating income for Parks, Consumer Products and the Studio segments were growing at 15 percent, 21 percent and 45 percent, respectively.

“We argue it is wrong to overlook the growth coming from businesses which contribute half of Disney's profits, and which also help support a premium multiple for the stock,” Sheikh added.