Disney stock could get some zip from video streaming
Even as Walt Disney (DIS) reported positive results last week for its latest fiscal quarter, support for its stock on Wall Street has been wavering lately. Disney shares have been on the ropes since last year when they hit a 52-week high of more than $120 a share. The stock is currently trading just under $97.
Among the reasons for the slide is investor worry over problems at its ESPN unit. But true to Disney's strategic priorities focused on creativity and innovation, the diversified media conglomerate surprised investors on Tuesday, Aug. 9, with an announcement that it's investing $1 billion to get into sports video streaming, evidently to squelch ESPN-related woes.
Disney said it acquired a 33 percent stake in BamTech, the rapidly growing video streaming unit of Major League Baseball, for $1 billion. The deal gives Disney the right to acquire a controlling interest in BamTech, which handles video streaming for baseball teams and Time Warner's (TWX) HBO, that eventually will lead to creating an ESPN-brand subscription sports-streaming service.
Disney CEO Robert Iger told analysts in a conference call that the streaming services would cover baseball, tennis, hockey, cricket, college sports and more.
Disney's broadened move into streaming quickly heightened investor enthusiasm and renewed a positive response from the Disney bulls. The stock briefly traded above $99 on Wednesday following the Aug. 9 BamTech announcement and Disney's reporting of positive fiscal third-quarter results. It posted earnings of $1.62 a share for the quarter, vs. $1.45 a year ago. And revenues jumped 9 percent, buoyed by film offerings of "Captain America," "Jungle Book" and "Finding Dory," as well as its domestic theme parks.
Vasily Karasyov, equity analyst at investment firm CLSA, said in a report that Disney's stake in BamTech and its plan for an ESPN streaming offering are partly why he's maintaining an "outperform" rating on the stock. Also a positive, he added, is Disney's agreement for its networks to be carried by DirectTV Now. The analyst has a price target of $114 a share for Disney's stock.
Neil Macker, equity analyst at Morningstar, said he's maintaining the "wide-moat rating and our fair value estimate of $134 a share for Disney." With the stock trading in the four-star range (of Morningstar's stock rankings), it offers "an attractive entry point for investors with a long-term investment horizon," said Macker in a report appraising Disney's acquisition of a big stake in BamTech.
Tuna Amobi, equity analyst at S&P Global Market Intelligence, reiterated his "buy" rating on Disney and maintained his 12-month price target of $110 a share. He also kept his earnings estimate for fiscal 2016 of $5.82 a share and his 2017 forecast of $6.23.
Disney's move into video streaming appears in line with CEO Iger's continuing strategy of making the company's content available across various digital platforms, concluding broadband, wireless/mobile and video games, noted Amobi.
The S&P analyst said he sees a likely continuation of momentum into fiscal 2017 on positive results from the studio and domestic theme park businesses. And he thinks the concern over ESPN's exposure to potential adverse shifts in the U.S. pay-TV landscape "seems overdone."
Amobi added that he sees Disney continuing to produce widely acclaimed home-grown films, such as the popular "Frozen" and "Guardians of the Galaxy," as well as highly acclaimed acquired films, such as Marvel's "Avengers" and LucasFilm's "Star Wars." And "we see ample financial flexibility on further acceleration in free cash flow to support Disney's total return initiatives and potential acquisitions," said Amobi.
Disney's primary cash cow, ESPN, has been under immense pressure as the pay-TV landscape continues to change as subscribers migrate to online TV," noted Zacks Investment Research, in a report. There had been speculation, Zacks said, that Disney had been planning to offer its own live-streaming TV package directly to consumers.
Zacks pointed out that among the reasons for investors to buy Disney's stock are its movie business, which continues to fuel growth with its blockbuster film productions, such as "Star Wars Episode VII: The Force Awakens," and "Zootpia," as well as the consistent performance of Disney's parks and resorts.
Also a very positive factor, said Zacks, is Disney's continued "prioritized" emphasis in improving shareholder returns, through share buybacks and increased dividends. Zacks noted that in December 2015, Disney raised its semi-annual dividend by 7.8 percent, to 71 cents a share.