Market Overview

Disney Headwinds Could Soon Shift To Tailwinds; Is Now The Time To Buy?

Share:
Disney Headwinds Could Soon Shift To Tailwinds; Is Now The Time To Buy?
Related DIS
The 100 Million Club: Putting Amazon's Prime Memberships In Perspective
This Day In Market History: ABC Begins Broadcasting
Valley National Advisers Inc Buys Schwab US Dividend Equity, Schwab International Equity, ... (GuruFocus)

Over the past few years, Walt Disney Co (NYSE: DIS)'s investors have had to worry about the same headwind: subscriber losses from its ESPN unit. But these concerns should be considered "overblown," at least according to UBS's Doug Mitchelson, who maintains a Buy rating and $126 price target on Disney's stock.

Disney recently announced its own direct-to-consumer OTT (over-the-top) service for ESPN along with its Disney/Pixar-branded content, Mitchelson commented. While management hasn't yet provided much information about the financial aspect of the service, a serious of reasonable assumptions support management's move.

tipranks.png

Overall, the analyst is estimating that incremental operating expenditure and lost revenue will hamper Disney's fiscal 2018 EBIT by only an incremental $270 million and another $200 million in the following year. Granted, while this figure appears to be "significant," it is well below what many investors are assuming.

Disney will likely ramp up its investments in the direct-to-consumer service in fiscal 2020 by $450 million to $550 million, the analyst continued. However, if the service attracts just 3.5 million subscribers at a cost of $5.99 a month then the revenue will match the losses.

Bottom line, Disney's stock will likely move higher as investors continue to recognize how ESPN's headwinds of prior years will now shift to tailwinds. Disney's stock is now trading at a 16.0x multiple on 2018 P/E which is a discount to the S&P 500 index and instead of pursuing dilutive M&A deals the company will continue buying back its own stock.

Related Links:

Should Disney Investors Be Worried About The Latest ESPN Fiasco?

The Netflix Effect Is Only Half The Story For Disney

Latest Ratings for DIS

DateFirmActionFromTo
Apr 2018Pivotal ResearchUpgradesSellHold
Mar 2018Loop CapitalInitiates Coverage OnBuy
Feb 2018BMO CapitalMaintainsUnderperformUnderperform

View More Analyst Ratings for DIS
View the Latest Analyst Ratings

Posted-In: Analyst Color Long Ideas Reiteration Sports Top Stories Analyst Ratings Media Trading Ideas Best of Benzinga

 

Related Articles (DIS)

View Comments and Join the Discussion!