Market Overview

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

Disney Headwinds Could Soon Shift To Tailwinds; Is Now The Time To Buy?
Related DIS
The Legacy Of Stan Lee: Marvel Comics Mastermind, Box Office Gold
Bulls & Bears Of The Week: Apple, Disney, Ford, Target And More
Top Merger Stocks Held By Fund Managers, Mid-Q4 2018 (Seeking Alpha)

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.


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

Nov 2018ArgusMaintainsBuyBuy
Oct 2018BarclaysUpgradesEqual-WeightOverweight
Oct 2018Morgan StanleyMaintainsOverweightOverweight

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!

Latest Ratings

ACBIKeefe Bruyette & WoodsUpgrades21.0
COTYBMO CapitalUpgrades12.0
VYGRRaymond JamesUpgrades0.0
ATNXJP MorganUpgrades15.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Mid-Day Market Update: Crude Oil Up Over 3%; Cellectis Shares Plummet

Predicting A Price Surge, Bank Of America Upgrades U.S. Steel