Credit: Shutterstock photoEven though Walt Disney (DIS) shares fell sharply after the company reported second-quarter results thanks to weakness at ESPN, the company's other segments, notably its film and parks segments, are likely to help boost shares in the long-run, one analyst says.
RBC Capital Markets analyst David Banks believes that Disney is on the verge of two major catalysts, the upcoming release of Star Wars: The Force Awakens and Shanghai Disneyland, which should help investors look past any volatility.
"Its deep pipeline of [intellectual property] driving momentum at the Studio and Consumer Products division and premier core media franchises suggest a premium multiple to Media stocks, but ecosystem pressures could drive volatility," Banks wrote in a note.
Disney posted second-quarter results that were mixed, earning $1.45 a share, topping estimates, but revenue fell short of consensus, at $13.1 billion for the quarter.
The company lowered its outlook for its cable networks to grow earnings before interest and taxes to mid-single digit growth, primarily due to weakness at ESPN, but Banks noted that the weakness here has been overlooked by investors in the past.
"As we have recently written, investors have become increasingly comfortable with assigning DIS a consumer-branded products or even staple-type multiple at 20x forward EPS despite +50% of [Disney's open interest] coming from Media Networks," Banks wrote. "By acknowledging that vulnerability to secular sub losses (though relatively modest) could negatively impact earnings next year, management reminded investors that it cannot fully mitigate media ecosystem risk despite potential upside from franchises (e.g., Marvel, Pixar, Star Wars, etc.) across all of its platforms (Studio, Parks, Interactive and TV), which could potentially pressure the multiple."
Even with the weakness, Disney shareholders have plenty to look forward to, Banks noted.
"On the other hand, upside in consumer branded opportunities of the relaunch of Star Wars in December with 5 movies in the next 5 years along with the opening of the Shanghai Resort will likely lend some support to the multiple over the next several months as these catalysts approach," Banks wrote. "However, we note there could be some volatility in the near term."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
