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Why A Weak Q4 From Disney Didn't Stop Barclays From Upgrading The Stock

Why A Weak Q4 From Disney Didn't Stop Barclays From Upgrading The Stock

By many measures Walt Disney Co (NYSE: DIS)'s fourth-quarter earnings report was poor and demonstrated continued weakness in the company's ESPN unit.

Nevertheless, Kannan Venkateshwar of Barclays upgraded Disney's stock to Equal Weight from Underweight with an unchanged $89 price target.

According to Venkateshwar, one of the main drivers of the negative sentiment surrounding the stock was the fixed cost/variable revenue business at ESPN. The analyst stated that Disney has now eliminated the uncertainty around the overhang by quantifying the impact of ESPN's new contract with the NBA.

The analyst did, however, caution that EPSN remains secularly challenged, but there is now more visibility into the next year.

Disney Shanghai

Venkateshwar continued that Disney's indicated its park in China is likely to finish next year near break-even, which is a "positive surprise" relative to expectations.

This update also removes some of the uncertainty surrounding Disney's parks outside of the United States, as its property in Paris and Hong Kong have seen some struggles as of late.

Box Office

Finally, Venkateshwar stated that Disney's box office slate for 2018, which includes two "Star War" titles, "Thor," "Black Panther," "Avengers," among many others, provides another floor for multiples.

In the interim, Disney could see a boost in consumer products from titles like "Cars 3" and "Spiderman."

Limited Downside

Bottom line, Disney's stock is still expensive trading at a 9.7x multiple on a 2017E EV/EBITDA basis versus the median average of 9.3x. However, given the M&A activity in the media space and a shift away from technology stocks, downside in Disney's stock should be limited moving forward.

"While company performance over the course of this year and its 2017 guidance bears out our prior negative outlook, we believe the risk reward to be better balanced over the coming quarters; we upgrade to Equal Weight," the analyst concluded.

Shortly after Friday's opening bell, Disney was up 3.06 percent at $97.87.

Latest Ratings for DIS

Nov 2019MaintainsOverweight
Nov 2019MaintainsBuy
Nov 2019MaintainsIn-Line

View More Analyst Ratings for DIS
View the Latest Analyst Ratings

Posted-In: Analyst Color Earnings News Guidance Upgrades Price Target Analyst Ratings Movers Best of Benzinga


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