Walt Disney Co. (DIS) can maintain its leadership position in the face of rapid disruption in the media space, according to one team of bulls on the Street. As Disney nears the close of its deal to buy key assets from 21st Century Fox Inc. (FOXA) and gears up to release its own direct-to-consumer streaming platform to take on deep-pocketed tech titans like Netflix Inc. (NFLX) and Amazon.com Inc. (AMZN), Barclays expects the company to come out stronger than before.
Disney Investor Day to Ease Worry Over Big Spending on New Business
Shares of Disney have outperformed the broader market this year, up 10.2% year-to-date (YTD) compared to the S&P 500’s 4.2% return. Barclays analyst Kannan Venkateshwar forecasts the stock to jump another 9.7% over 12 months from Friday morning at $118.50, lifting his price target on Disney shares from $105 to $130 in a note to clients on Friday.
Venkateshwar upgraded Disney stock to overweight from equal weight, attributing his more upbeat forecast to the company’s new over-the-top media service, slated for release in 2019. In August 2017, Disney announced that it was cutting ties with streaming industry leader Netflix to launch its own rival service, as well as a platform for ESPN.
“We believe the company has the key mix of assets to be successful and the opportunity from this pivot could be substantial,” wrote the Barclays analyst.
Venkateshwar expects Disney’s investor day, slated for sometime in early 2019, to offer investors a sense of the scale of the firm’s ambitions, as well as work to relieve some fear regarding the magnitude of earnings downside expected from investments in the new business segment. As competition in the media space ramps up, key players are shelling out billions to ramp up their streaming businesses, with Netflix expected to spend as much as $13 billion on original content in 2018.
While Disney is paying a hefty sum of Fox assets, thanks in part to a drawn-out bidding war with Comcast Corp. (CMCSA), Barclays noted that the firm is actually the least indebted of all in the big media space.
“We believe Disney’s Investor Day could prove to be a catalyst to frame the scale of the opportunity and help the company build a credible terminal value ‘story’ around the stock,” wrote the Disney bull.