A Walt Disney Company DIS analyst is calling for a spinoff many have suggested for the media giant over the years.
While previous CEO Bob Chapek was against spinning off ESPN and ABC, the analyst sees newly appointed CEO Bob Iger as being in favor of the change.
What Happened: Disney recently announced it has brought back former CEO Iger to lead the company after several battles with shareholders, politicians, fans and a declining share price.
Wells Fargo analyst Steven Cahall said Iger was brought back to Disney to make big changes. Cahall has an Overweight rating and a price target of $125 on Disney shares.
“Spinning ESPN/ABC is the best path forward and we see it as a reasonably probable late –’23 event,” Cahall said.
In the short term, Disney could focus on content and costs, but in the long term, the analyst sees Disney working on portfolio reshaping.
“With linear and sports trends diverging from core IP, we think severing the company is increasingly logical.”
The analyst makes the case that Disney will offer ESPN as an a-la-carte streaming option under this plan.
“We think ESPN inside of Disney is a portfolio with less and less logical connection as time goes by.”
The analyst said that trends for linear brands and streaming brands are diverging and the adding complication of sports rights makes this a strong move.
Cahall sees less synergies between ESPN and the other Disney businesses and also points to the ability for investors to value content and sports independently under such a move.
The analyst estimates that an a-la-carte ESPN option could see the sports company have 30 million subs split 50% linear and 50% direct-to-consumer.
While some have argued for Disney to spin off ESPN for years, Cahall also calls for ABC to be spun off, as he said it would allow the linear brand to launch its own streaming platform.
Together, the analyst values the ABC and ESPN brands as a spun off company at an enterprise value of $26 billion.
The remaining company consisting of Disney’s legacy business, parks and resorts and direct-to-consumer would be popular with investors and easier to value, he said.
The analyst also sees the potential for Disney to sell its 67% stake in Hulu to Comcast Corp CMCSA, which owns the remaining 33%.
Related Link: Disney CEO Bob Iger Emphasizes On Cost Efficiences, Streaming Business Profitability In His First Employee Meet
Why It’s Important: While the CEO of Disney, Iger helped shape the portfolio for the future, completing acquisitions that included Marvel, Pixar, Lucasfilm and 21st Century Fox.
Now brought back in to lead the company, there could be a chance at more acquisitions or major moves to help right the ship and share price.
“We think with Bog Iger returning as Disney’s CEO the potential for strategic change is greater than ever. Iger’s legacy is transactions, after all,” Cahall said.
Activist investor Dan Loeb, who owns a stake in Disney, previously issued several suggestions to Disney’s board to unlock shareholder value. Among the key items from Loeb was a spinoff of ESPN.
Chapek had previously brushed off notions to spin off ESPN, saying that if everyone thought the brand was valuable on its own, it shows the potential value unlock under Disney ownership.
With Disney shares down 44% year-to-date in 2022, calls for Disney to be active with acquisitions or spinoffs under Iger could grow louder.
DIS Price Action: Disney shares are up 0.76% to $86.43 on Tuesday versus a 52-week trading range of $85.41 to $160.32.
Read Next: NFT Possibilities Are 'Extraordinary,' How Bob Iger's Return Could Propel Web3 Growth
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