Bob Iger Pacifies Disney Investors Following Disappointing Q4 Performance

Reviewing Walt Disney Co DIS's fourth-quarter results, BMO Capital Markets said it believes the shares reacted well to CEO Robert "Bob" Iger's observation that ESPN is seeing less impact from MVPD subscribers downgrading to packages that exclude ESPN.

At the time of writing, shares of Disney were up 2.73 percent at $97.55.

However, the firm said growing gross subscriber additions remains a focus. The firm noted that DTVNow and Hulu signings were confirmed, although the company did suggest that going direct-to-consumers remains an option. If new VMVPDs do not gain traction, the firm believes Disney is likely to be aggressive.

4Q Review: Mixed Bag

BMO Capital Markets noted that Disney's fiscal fourth-quarter adjusted earnings per share of $1.10 were below the consensus and its estimates. Media nets operating income exceeded estimates, while parks, studio and consumer products all missed, the firm noted. Excluding the impact of the 53rd week comp., the firm believes total affiliate fees would have been up 5 percent instead of the 3 percent reported drop, which is more than the 0.5 percent decline estimated by the firm.

Modest Growth Modeled For 2017

The firm expects 2017 earnings per share to grow modestly, given the tough comps at film and consumer products. Including the $600 million NBA rights set-up, the firm expects 8 percent growth in cable programming expenses.

Analyzing the prospects of segments, BMO said:

• Media networks could see ESPN's ad sales pacing down in the fiscal year first quarter, as three of the six college football playoff games air in the second quarter versus all six in the first quarter in 2016. The added inventory arising out of the new NBA deal could be an upward catalyst to ad estimates in 2017.
• For park, the Shanghai Park is expected to approach break-even in 2017. Domestically, growth opportunities would stem from capex than price increases, which has been fueling growth in the past few years.
• Studio could witness a down year after six straight record breaking years, although a rebound is expected in 2018, with two "Star Wars" films, four from Marvel and three animated films from Pixar and Disney Animation.
• BMO believes transformative M&A like a Netflix, Inc. NFLX-buy is less likely, given Iger's pending retirement. The firm noted that the buyback was renewed at $7 billion to $8 billion after the $7.5 billion bought in 2016.

Maintaining Rating, Price Target

As such, BMO Capital said it is comfortable at Market Perform, as ESPN continues transitioning. The firm also maintains its $90 price target.

Image Credit: By hyku [CC BY-SA 2.0], via Wikimedia Commons