Walt Disney Co (NYSE:DIS) is one bull’s greatest idea in the media sector, as the analyst angles for meaningful absolute total return from the House of Mouse in the next 12 months, cheering a “favorable” risk/reward.
After the entertainment giant’s management team hosted investors in Burbank, California for questions on the heels of the $66.1 billion Fox deal and to see a Star Wars screening, RBC Capital analyst Steven Cahall is content to see that “reviews of both are positive.”
In reaction, the analyst reiterates a Top Pick rating on DIS stock with a $125 price target, which implies a just under 12% upside from current levels. (To watch Cahall’s track record, click here)
“DIS’s CEO and CFO hosted a brief Q&A in Burbank focused on the $66.1bn deal for FOXA assets. The Q&A was originally slated to focus on Star Wars: The Last Jedi (screened shortly thereafter) but with the transaction announced earlier in the day (see our note: The Blueprint)
While originally the Q&A had been planned to center on Star Wars: The Last Jedi, Cahall notes that following the transaction of Fox assets, “the buyside and sellside was expectedly all about the deal,” adding: “The management discussion didn’t include any new bombshells (everyone in the room was too tired for such drama), but instead reinforced the dedication to both direct to consumer content at scale, and maintaining a diverse set of network assets centered around sports.”
Cahall believes, “Investor feedback on the deal has been positive, with key attributes including the ability to bring the Murdochs into discussions + a sensible capital structure. The jury is still out on what sort of investment DTC will ultimately entail and what level of success it will achieve. But, for now investors seem to have a newfound respect for what it feels like when a stalwart like DIS flexes its muscles. We’ve seen other megacaps evolve their narratives from formerly defensive positions to higher multiple stories (e.g. GM, Walmart, McDonald’s) and this could be DIS’s 2-3 year rerating path as DTC gets closer.”
For the analyst, the latest Star Wars is precisely “what big budget movie-making is all about,” looking for a $220 million domestic opening. Even though the movie “has a lot to live up to,” the analyst believes Disney truly “delivered” on this one.
TipRanks shows an analyst consensus that is far less confident than Cahall, with a toss-up between the bulls and the bears on the entertainment empire’s opportunity at hand. Out of 17 analysts polled in the last 3 months, 6 are bullish on Disney stock, a majority of 8 remain on the sidelines, and 3 are bearish on the stock. The 12-month average price target stands at $110.93, aligning with current trading levels.