Disney: 'Next Stop, Shanghai'

Walt Disney Co DIS reported its F2Q results on May 11. Deutsche Bank’s Bryan Kraft maintained a Hold rating for the company, while raising the price target from $113 to $115. The EPS estimate for 2016 has been raised by $0.12 to $5.89. The EPS estimates for 2017 and 2018 have been reduced by $0.15 each to $6.07 and $6.97, respectively.

Park In Shanghai

The park is scheduled to open in June 2016 and could be a catalyst for Disney’s shares, “assuming a strong opening and minimal operational hiccups,” analyst Bryan Kraft wrote. He forecasted Shanghai to turn operating-income positive in 2019 and said that it could be a significant profit driver, generating $900M in operating income in 2021.

Stock Price Outlook

Kraft estimated 15 percent upside to Disney’s shares. Apart from the Shanghai Park opening in June, the analyst identified the following as key factors in the outlook:

• CEO Succession - CEO Bob Iger is scheduled to leave the company in June 2018 and the Board has the daunting task of finding a successor with “the rare combination of exceptional creative instincts, business leadership, and an ability to manage the personalities within Disney’s creative ranks,” the Deutsche Bank report stated.
• Tough Near-Term Cable Networks OI Outlook – Disney’s Operating Income is expected to decline in 2017 due to subscriber losses, the extra week comp in 4Q and cost pressure from the NBA renewal. OI growth is likely to return in 2018, “driven by minimal rights renewals (only Big Ten) and the beginning of a new affiliate renewal cycle during which ESPN will exercise pricing power,” Kraft mentioned.