Deutsche Bank Upgrades Walt Disney (DIS) to Buy; Confident in 2017
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Deutsche Bank upgraded Walt Disney (NYSE: DIS) from Hold to Buy with a price target of $112. Analyst Bryan Kraft said he has increased confidence in 2017.
"The investment case for DIS has, for the better part of 2016, been focused on a return to double-digit EPS growth in 2018. We've generally agreed with this investment case, but we've remained at Hold due to our concerns over weakening performance in the Cable Networks and Consumer Products businesses, and the associated risk posed to our and consensus estimates. We now have more confidence in the outlook and are moving to Buy, as a result," said Kraft.
The analyst noted five key points:
- "(1) ESPN subscriber declines have improved and should improve further with the proliferation of streaming pay TV bundles in F2017. The beginning of a new ESPN MVPD contract renewal cycle awaits investors in late F2017, which should be a catalyst for multi-year affiliate revenue growth acceleration in 2018.
- (2) There is now clarity on Cable Networks programming cost growth. While 2017 will see a decline in OI, the size of the cost increase driving it is now known to the market. This is a one-year headwind due to the NBA contract renewal. Management has flexibility to manage non-programming costs more efficiently.
- (3) The trough for Consumer Products declines will be the December quarter, and management has provided guidance for this decline. Incremental growth drivers will emerge in 2H17 with the release of Cars 3 and Spiderman: Homecoming.
- (4) Tough film comps are well understood, but 2017 should still be DIS’ second best Studio year ever, highlighted by major tentpoles and the first year of its NFLX output deal. We also expect solid home entertainment performance.
- (5) Parks and Resorts growth should accelerate (we estimate 21% OI growth) due to easy comps against Shanghai pre-opening costs; and due to growth in attendance and per capita spend in Orlando, management’s focus on costs, and seasonal pricing levers yet to be pulled."
Shares of Walt Disney closed at $97.70 yesterday.
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