This Analyst Sidelined on House of Mouse Walt Disney Co (DIS) Despite Growth in Domestic Margins

FBR analyst Barton Crockett came out with a research note on shares of Walt Disney Co (NYSE:DIS), after the House of Mouse posted results for its third fiscal quarter, revealing an explosion in domestic margins for powerful parks calming Crockett’s initial fears. However, with a decline in ad pacings on the heels of the Olympics, Frozen comps proving to be “surprisingly tough,” and the analyst questioning whether Disney can maximize limited consumer demand with its plans to take $1 billion stake in Major League Baseball Advanced Media (MLBAM), Crockett reiterates a Market Perform rating on Disney with a $108 price target.

Disney adjusted its earnings per share (EPS) of $1.62 up by 12% for year-over-year, which fell under Crockett’s estimate, but topped FactSet after excluding $0.03 of restructuring charges. The company also saw an increase of revenues to $14,277 million, missing the analyst’s mark by $78 million, but topping FactSet by $129 million. Segment profits also saw an increase to $4,456 million, outclassing both Crockett’s projection by $230 million as well as FactSet’s estimate by $169 million. Crockett accordingly adjusts EPS for the fiscal year of 2017 to $5.80, flat YOY.

The analyst openly admits he feared how Disney’s parks would perform, considering SeaWorld noted a significant 50% “step-down” in Latin American attendance, and in the context of “tragic news flow, and an Easter Shift,” Crockett expresses, “We were worried about Disney’s parks.” However, to Crockett’s surprise, “Domestic margins exploded.” Total segment revenues of $4,379 million hit $71 million above the analyst’s estimate, with a per-caps rise offsetting a minimal attendance drop. Disney’s segment profit of $994 million topped Crockett’s expectation by a hefty $333 million. Implied domestic operating profits topped the analyst’s projection by $168 million.

Meanwhile, international losses performed better than Crockett’s expectation by $165 million, with the analyst crediting Shanghai launch costs resulting far lower than had been initially anticipated. This weighs in as a positive factor for the company, which Crockett maintains is “very supportive of our view that this can become the most profitable Disney park in the world.”

Yet, even in light of Disney’s “astonishing movie streak” pushing studio segment profits up to $766 million, topping Crockett’s estimate by $61 million, the disappointment for Disney lies with CP/Interactive profits, which fell to $324 million.

Disney’s new MLBAM investment causes the analyst a great deal of concern, even though he appreciates the forward thinking behind the decision. Crockett explains, “We generally think Disney, like its peers, over time, has to go more direct, so we applaud MLBAM. But we see the new ESPN OTT as niche, not a needle mover. Additionally, we see limited consumer demand and challenged commercial viability for new OTT skinny bundles like DirecTV’s and Hulu’s.”

According to TipRanks, Barton Crockett is ranked #505 out of 4,110 analysts. Crockett maintains a steady 52% success rate and realizes 5.9% in his annual returns. When recommending DIS, Crockett yields 7.3% in average profits on the stock.

TipRanks analytics demonstrate DIS as a Buy. Based on 20 analysts polled by TipRanks in the last 3 months, 10 rate a Buy on Disney, 9 maintain a Hold, and 1 issues a Sell. The consensus price target for the stock stands at $111.74, marking a 14% upside from where the shares last closed.

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