Disney's Management Calls 2017 Revenue Headwinds An 'Anomaly'

Walt Disney Co’s DIS revenue and earnings declined in Q4 due to difficult comps. Although management warned of “modest growth” in FY 2017, they noted this would likely be an “anomaly” in the company’s earnings “growth trajectory.”

Disney seems to be “positioning itself for long-term growth,” Argus’ Joseph Bonner said in a report. He maintained a Buy rating on the company and reiterated a price target of $129.

Results And Guidance

Disney reported a 3 percent year-over-year decline in revenue to $13.1 billion. Operating margins at Media Networks contracted by 200 basis points to 28.3 percent, driven by difficult comps due to an extra week in Q4 of 2015.

Although adjusted net income was down 12.5 percent, adjusted EPS declined merely 8 percent, due to share buybacks. EPS missed the consensus estimate by $0.06.

“However, we note that Disney gives only the most general guidance, which makes it easy for Street estimates to be off the mark,” Bonner stated.

Moreover, the company’s projection of “modest growth” for FY 2017 comes against tough prior-year comps and other transient issues. The analyst reduced the EPS estimate for FY 2017 from $6.16 to $5.95.

Moving In The Right Direction

“With its investment in Major League Baseball’s BAMTech platform, Disney is clearly moving toward the development of its own over-the-top streaming ESPN video service. While this may not end the debate over ESPN’s place in the emerging/converging cable/OTT distribution landscape, we see the BAMTech deal as a major step in the right direction and as a hedge against further traditional cable subscriber losses,” Bonner wrote.