5 Reasons To Buy Disney Now, According To Deutsche Bank

Deutsche Bank upgraded Walt Disney Co DIS to Buy, with the revision attributed to five key investment points. The firm said it's now more confident in the outlook, while earlier it was held back by concerns over weakening performance in the cable networks and consumer products.

Analyst Bryan Kraft explained the investment theses behind the firm's rating action.

ESPN May Be Turning the Corner

The decline in ESPN subscribers has improved and likely to improve further, with the proliferation of streaming pay TV bundles in 2017. The firm sees the new ESPN MVPD contract renewal cycle due in late 2017 to be a catalyst for multi-year revenue growth acceleration in 2018.

Visibility into Cable Networks Programming Cost

The firm expects a decline in operating income in 2017, but feels the improved visibility into the size of cost increase is a positive. The cost increase is viewed by the firm as a one-year headwind due to NBA contract renewal, while it feels the management can manage the non-programming costs more efficiently.

Trough Nigh for Consumer Product Declines

Deutsche Bank believes the trough for declines at its Consumer Products business segment will be in the December quarter. The firm sees growth drivers emerging in the second half of 2017, with the release of "Cars 3" and "Spiderman: Home Coming."

Second Best Studio Year

Despite tougher comparisons, the firm believes 2017 will be Disney's second-best studio year, highlighted by major tentpoles and the first year of its Netflix, Inc. NFLX output deal.

Acceleration Expected in Parks & Resorts

The firm expects growth at its Parks and Resorts business to accelerate, with the firm's estimate of operating income growth at 21 percent. The estimate is based on expectations of easy comps against Shanghai pre-opening costs and growth in attendance and per capital spend in Orlando.

Explaining the valuation, Deutsche Bank noted that Disney shares currently trade at 16.3 times its 2017 earnings per share estimate, lower than the 16.8 times valuation for the S&P 500. And its price target, the firm said, is based on a P/E multiple of 16.7.

As such, Deutsche Bank upgraded shares to Buy from Hold, with a price target of $112.