Investors may want to consider becoming constructive on Walt Disney Co DIS but only in the event of a "measurable pullback" in the stock, according to Imperial Capital.
The Analyst
Imperial Capital's David Miller initiated coverage of Disney with an In-Line rating and $108 price target.
The Thesis
Disney is stuck in a "very unique" position where three of its core business units — parks and resorts, consumer products and interactive and studio — are operating in a "best-in-class manner," Miller said in the initiation note.
The media networks business continues to face challenges from the cord-cutting trend, lower ratings from the non-sports linear networks and incremental money needed to support BAMTech, of which the company now owns 75 percent, the analyst said.
Disney's recently introduced ESPN+ gives the company direct exposure to the over-the-top space, but it can't be considered a true catalyst for the business given the lack of NBA or NFL content, Miller said.
Imperial Sees Positive, Negatives In Fox Deal
Disney's pursuit of Twenty-First Century Fox Inc FOXA has four notable positives, the analyst said:
- Disney wins several Marvel character groups not included in the original Marvel deal that would add value to its Marvel cinematic universe.
- Disney takes over James Cameron's multiyear-long sequel to "Avatar."
- Disney's low exposure to the international market will "change in a fairly dramatic form."
- Disney assumes Fox's interest in Hulu, which gives it a 60-percent majority ownership stake.
The potential negative outcomes of the deal include the following, Miller said:
- The Murdoch family could become a top-10 Disney shareholder and create a "myriad of interest conflicts."
- The inclusion of the F/X channel doesn't fit Disney's profile.
- The price tag on a deal implies a multiple of 16 times on out-year EBITDA, which is "enormous" for the level of scale and content that Disney already boasts.
Price Action
Disney shares were trading up 0.13 percent off the open Thursday at $104.09.
Related Links:
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Experts: Viacom-Netflix Deal Could Spark New Media Trend Toward OTT Content Partnerships
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