Walt Disney (DIS): Does the Lion King Still Rule the Jungle?

GBH Insights' Daniel Ives believes DIS fundamentals are not the star of the show following FQ2 print; it's all about the Fox acquisition.


Walt Disney (NYSE:DIS) released its second quarter fiscal earnings showcase last night, but Wall Street was buzzing about far more than just quarterly numbers. Comcast may be gunning for Fox assets, and with a prospective rival bid trying to knock the House of Mouse out of the water, the Fox acquisition is captivating investor attention.

GBH Insights analyst Daniel Ives chimes in with a bullish take, calling the quarter stronger than the Street had “feared.” Yet, as far as Ives is concerned, “this quarter fundamentals take a back seat,” with the Fox takeover, streaming initiatives, and the newly launched ESPN service taking center stage.

The analyst reiterates an Attractive rating on DIS stock with a $120 price target, which implies a 19% upside from current levels. (To watch Ives’ track record, click here)

For the second fiscal quarter, the entertainment giant posted $14.55 billion in total revenues and $1.84 in pro forma EPS, beating out the Street’s $14.11 billion and $1.70 forecasts. Media and Networks revenue hit $6.14 billion, just ahead of the Street’s $6.09 billion, with Parks and Resorts revenue of $4.88 billion outperforming the Street’s $4.69 billion projection. Studio revenue proved strong as well, yielding $2.45 billion against the Street’s $2.19 billion, which Ives notes “will be viewed a relief by the Street given some of the choppiness seen over the last few months on the box office front.” Though Consumer/Interactive’s $1.08 billion underperformed the Street’s $1.14 billion, this does not leave Ives too surprised, who calls the performance “somewhat expected.”

“The biggest news will be the early signs of success of ESPN Plus that the bulls look to hear about on the earnings call, Disney’s first ever $4.99 per month direct to consumer offering which is music to the ears of investors that have long awaited for this strategic move to stem some of the sub loss on the ESPN front. This over the top service rolled out this spring and we believe this was a ‘no brainer’ move for Iger to launch this and further capitalize on its flagship ESPN franchise. With this service having massive amounts of sports content, it’s the perfect foray into streaming in our opinion with Disney’s standalone service coming down the pike slated for 2019, with the Fox acquisition and Hulu ownership making the company a legitimate streaming player,” highlights Ives.

Regarding the flagship Fox acquisition, Ives notes that the deal coupled with Disney’s streaming serviced poised for a launch next year would give the company “clear runway to gain market and mind share from the likes of Netflix.” Should DIS keep this deal in its home court, away from the hands of Comcast, on back of a controlling stake of Hulu, the company would prove to be a far “more formidable and dangerous competitor” in the streaming battlefield. That said, in the short-term, Ives concludes anticipating DIS shares will be “range bound” amid the threat of Comcast for Fox along with regulatory challenges out circling.

TipRanks indicates DIS has Wall Street analysts mixed between cautious and positive sentiment. Out of 5 analysts polled in the last 3 months, 2 are bullish on DIS stock while 3 remain sidelined. With a return potential of nearly 14%, the stock’s consensus target price stands at $115.60.

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