Analysts View Disney As A 2018 Story – Sell-Side Round Up Of Q2 Results

Cautious On Long-Term Growth Trajectory

Jefferies analysts John Janedis and Jaime Morris made a mention of Disney's forecast-beating earnings, with the strength traced back to better than expected studio results on the back of strong home entertainment/theatrical performance. However, the analysts noted that cable net revenues were a bit light, a trend seen even among the company's peers.

Although the analysts believe the outlook for the studio/parks remains solid, they remained cautious on the long-term trajectory of the media nets.

Results Were Largely A Non-Event

BMO Capital Markets opined that the results were largely a non-event. This is despite the management indicating ESPN subscriber declines to increase by less than half a point in the fiscal second quarter versus the first quarter and reiterating DMVPD subscribers were just as valuable as traditional ones.

Analyst Daniel Salmon said challenges for SportsCenter in the social media age compounded his cautious view on ESPN. Meanwhile, the studio and parks continue to perform very, very well, but largely in line with expectations, the analyst said.

The firm believes the risk/reward skews negatively and continue to see more negative data points than positive ones for ESPN, which it believes will remain the dominant theme for the stock. Moreover, the firm feels it is still too early to own the stock for the fiscal 2018 film slate.

Thus, the firm sees downside risk to the bottom of the recent trading range of $90–$115.

Mid/High Teens Earnings Growth To Emerge In 2018

Loop Capital Market's David Miller indicated that slight revenue miss was due to a shortfall in media networks, and due to the effects of a tough comp at the studio.

"All along, we've abandoned valuing DIS off F2017 and have always seen F2018 as the more appropriate fiscal year, as that will likely be the year that the mid/high teens earnings growth which DIS shareholders have enjoyed the past 10 years will probably re-emerge," the analyst indicated.

Industry-Leading Returns Can Be Sustained Long Term

Credit Suisse noted that Disney's fiscal second-quarter earnings per share beat estimates and the company reiterated its 2017/18 guidance, while also raising 2017 share buyback by more than 25 percent to $9 billion to $10 billion.

Analysts Omar Sheikh, Lawrence Dann-Fenwick and Boyao Sun trimmed their 2017 earnings per share estimate for the company by 1 percent to $5.88, but they raised their 2018 earnings per share estimate to $6.79, assuming 15 percent earnings per share growth in 2018.

"While the pace of change in the core Media Networks business will remain top of mind, we argue Disney has the assets and strategy to sustain industry-leading returns and FCF growth long term," the analysts said.

Rating/Price Target

• Jefferies maintains its Hold rating on the shares of Disney, with a $110 price target.
• BMO Capital Markets reiterated its Underperform rating on the shares of the company and maintains its $95 price target, which implies 8.8 times its estimated EBITDA for 2018.
• Loop Capital Markets maintains its Hold rating, with a $117 price target.
• Credit Suisse reiterated its Outperform rating and $125 price target for Disney shares.

At the time of writing, Disney was slipping 0.47 percent to $109.15.

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