Would Hulu and DTVNow Bring The Magic Back to Walt Disney Co (DIS)?

By Carrie Williams

What to expect of DisneyWalt Disney Co (NYSE: DIS) had been through a wringer recently, due to decline in ad revenue as well as subscribers of ESPN, lower than expected turnout at Shanghai Disneyland, lackluster box office performance, headwinds from Olympics, and weaker profits at the cable. Consequently, its share prices had plunged by nearly 10% within three months. However, DIS made a remarkable recovery and pushed back to reach its previous levels in the past couple of weeks, due to some major positives reported recently.

DIS had reported dreary F4Q16 results on November 10, with EPS of $1.10 (vs. consensus of $1.16) and revenue of $13.14 billion which missed estimates by $380 million. However, the upbeat comments from management during the call resulted in share prices recouping the losses and moving further upwards.

Among the ‘Most magical place on earth’, Disneyland, the domestic parks continued to perform well, while the Shanghai Disneyland reported highly encouraging visitor turnover (4 million in four months). This would result in an estimated breakeven of the park by F2017, which is a year earlier than expected.

CEO Robert Iger also observed that ESPN was seeing less impact from MVPD subscribers downgrading to packages that exclude ESPN. In addition to the BAMTech deal announced last quarter, Iger anticipates reaching the subscribers that ESPN has lost through skinny bundles, using smaller, internet-delivered programming bundles from AT&T’s DirectTV and Hulu. This is expected to make ESPN very contemporary as well as mobile friendly. The signings of DTVNow and Hulu were confirmed by Iger, although he did suggest that going direct-to-consumers remained an option.

Even though a down year is expected currently for the studio after six record-breaking years, it is expected to be offset by the profits anticipated in 2018 from the two ‘Star Wars’ movies, four Marvel movies, and three animated movies from Pixar-Disney. In addition, management also gave explicit FY17 EPS guidance, reaffirmed their intention to repurchase another $7b-$8b of stock in FY17, and confirmed that FY18 would have strong growth.

Multiple analysts provided their reviews following the earnings announcement, with Brean Capital analyst Alan Gould staying on the sidelines with a Hold rating on the stock, as well as BMO. Barclays have upgraded their outlook to Equal Weight. Several analysts, such as Bofa, JP Morgan and UBS reiterated their Buy ratings on DIS.

Overall DIS has a Moderate Buy consensus rating with a $108 average price target, according TipRanks‘ data, which provides ranking of analysts’ rating accuracy. The average price target is currently a 10.57% upside from stock’s current levels.