Disney Investors Should Be Encouraged By Shanghai Disneyland, Media Networks

Walt Disney Co DIS reported margin expansion for the March quarter. Argus’ Joseph Bonner maintained a Buy rating for the company, with a price target of $129. The analyst commented that investments in Shanghai Disneyland were positioning the company for long-term growth, while Media Networks businesses are likely to continue performing well.

Why Estimates Had To Come Down

The company’s increased investment in Shanghai Disneyland and other projects have exerted pressure on earnings this year. Analyst Joseph Bonner said that capex and opex would be significantly elevated this year, with the opening of Shanghai Disneyland in June 2016 and the buildout of Star Wars “theme lands” in Orlando and Anaheim.

Walt Disney’s 2Q16 revenue grew 4 percent y/y to $13 billion, boosted by another quarter of robust growth delivered by the Studio Entertainment division. The Media Networks division recorded flat results due to q/q timing differences.

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The EPS estimate for FY16 and FY17 has been reduced from $5.89 to $5.86 and from $6.34 to $6.26, respectively, implying 10 percent growth over the next could of years.

The Positives

Bonner pointed out Walt Disney was positioning itself for long-term growth with the higher investments. Moreover, the Media Networks division’s performance was healthy, with operating income growing 9 percent to $2.3 billion, and accounting for about 46 percent of consolidated segment operating income.

The analyst expects the company’s Media Networks businesses to continue to perform well, “with a strong scatter advertising market and a robust upcoming film slate.”