Disney's Media Assets Undervalued, Morgan Stanley Analyst Asserts

Morgan Stanley analyst Benjamin Swinburne reiterated an Overweight rating on the shares of The Walt Disney Company DIS and lowered the price target from $120 to $110.
The analyst continues to believe Disney's media businesses are under-valued and under-earning.
The analyst's forecast of roughly 5-10% EBITDA margin for its media businesses in 2023, reflecting the view of an under-earning business.
The returns Disney's media assets (DMED) generating against its revenues and invested capital should be higher than they are today, said the analyst.
The analyst noted that ESPN DTC may be coming sooner rather than later, presumably a new NBA agreement is one of the major remaining gating items.
The analyst thinks Disney should offer a compelling product to cord-cutters to drive demand, a product that is more than just ESPN's networks over-the top.
Also, it should maintain existing distribution economics with pay-TV operators so DTC growth is largely incremental, added the analyst.
Regarding Hulu, the analyst believes the likely financing cost is modest and the long-term benefits of owning Hulu is potentially meaningful.
The analyst lowered Disney's Media revenues and operating income at both linear networks and DTC.
Also Read: Disney's Pixar Trims Workforce By 75: Is Lightyear's Box Office Disappointment To Blame?
At linear networks, the reduction is roughly 50/50 advertising (general entertainment) and distribution (cord-cutting, lower affiliate fee growth).
At DTC, the revenue reduction is 60/40 advertising (Hulu) and subscription (lower Disney Plus net adds), offset near term by reducing expenses.
The analyst concluded that Disney is in the midst of restructuring its Media operations and earnings optimization will take time.
Price Action: DIS shares are trading higher by 0.99% at $91.90 on the last check Tuesday.

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