Rosenblatt Initiates Hold on Walt Disney Co (DIS); Sees 6% Upside for the Stock

In a research report released yesterday, Rosenblatt analyst Alan Gould initiated coverage on shares of Walt Disney Co (NYSE:DIS) with a Neutral rating and a $120 price target, which reflects a potential upside of 6% from the last closing price. For Gould, the billion dollar question facing the entertainment giant is how can DIS fare in fiscal 2017, a time rumbling through the market with whispers of a “reset year” and “only modest growth” at best ahead for Disney.

Under the helm of CEO Bob Iger, beyond the last decade, earnings shot up 15%, making Iger an ideal captain to steer through the reset, with growth anticipated to make a resurgence come fiscal 2018. Yet, the uncertainty remains: Just “how rapidly” can earnings make a comeback on the heels of what is predicted to be a rockier year?

For this reason, though the analyst is positive on the giant’s strength in its film division, hitting all-time strides, coupled with an equally impressive domestic theme park margin performance, he approaches Disney from the sidelines. Gould elaborates, “ESPN’s issues have been well documented. In addition, the film division division’s performance last year was record setting and domestic theme park margins are at historic highs. On the other hand, DIS has the strongest multi-year film line-up that we have ever seen, and the parks division has the tailwind of Shanghai’s pre-opening costs from last year and is opening five new major additions or ‘lands’ to its parks over the next few years. In sum, and assuming normal economic cycles, we are projecting high-single digit earnings growth.”

Additionally, there has been M&A speculation that Disney has been looking to bring on board players like Twitter and Netflix. However, while the analyst believes it probable for the giant to acquire versus be acquired, he believes neither deal would ultimately serve DIS advantageously. From Gould’s stance, Netflix’s direct-to-consumer asset coupled with sports/entertainment synergies are outweighed by a “simply […] too pricey” tag whereas Twitter is lacking in “strategic rationale” to buy.

When sizing up Disney’s future, to Gould, the giant’s success rides on the giant’s ability as well as that of the “traditional TV ecosystem [to] develop Direct To Consumer relationships.” Looking ahead to a fleshed out over-the-top content service in the coming years, Gould concludes, “ESPN plans on rolling out a niche DTC product of secondary sports for which it already has acquired the rights later this year. We view this service as the first step of ESPN preparing for a full OTT service much further down the road, five-to-ten years from now.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Alan Gould has a success rate of 85% with an average return of 14.8%. Gould is ranked #572 out of #4,557 analysts on TipRanks. When recommending DIS, Gould yields 25.0% in average profits on the stock.

TipRanks analytics show DIS as a Buy. Based on 20 analysts polled by TipRanks in the past three months, 11 rate Disney stock a Buy, 6 are sidelined, and 3 consider the stock a Sell. The 12-month average price target stands at $114.94, marking a nearly 2% upside from where the stock is currently trading.

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