The Walt Disney Co. (DIS) received a vote of confidence this week as one team of analysts on the Street issued an upgrade on shares of the media giant. While not quite offering a bullish outlook on the stock, analysts indicate that investors are correct to hone in on the progress of Disney's broader shift to a direct-to-consumer (DTC) business. (See also: Disney’s ‘Black Panther’ Boosts Bottom Line: JPM.)
BMO Capital sees limited downside in Disney shares despite mounting competition in the disrupted entertainment industry as on-demand streaming providers such as Netflix Inc. (NFLX) continue to gain share faster than analysts expected. In a note to clients Wednesday, BMO Daniel Salmon lifted his rating on DIS from underperform to market perform while increasing his price target from $95 to $100, right around the stock's current price as of Thursday afternoon.
Salmon applauded Disney's focus on its DTC business and over-the-top content push, as the company plans to roll out a stand-alone video platform to rival Netflix, Hulu and Amazon.com Inc.'s (AMZN) Prime Video by 2019. BMO wrote that the firm “is positioning itself as such to concentrate on long-term growth opportunities and more clearly realigned around them." Salmon stated that the new segment “creates a dedicated division focused on the future of the media business.”
Weakness in Linear TV Segment Offset by New Offerings
While investors have reason to worry over declining subscribers for Disney's traditional ESPN TV sports network, with data by Nielsen demonstrating a 3% decline over last year, Salmon wrote that weakness should be offset with new products like ESPN Plus.
The analyst also highlighted a recent management reorganization at the Burbank, California-based global entertainment behemoth as a positive driver. In March, Disney created a new direct-to-consumer and international segment, naming Chief Strategy Officer Kevin Mayer chair of the division.
Despite a more balanced risk-reward profile, analysts indicate that “catalysts for shares remain elusive,” citing questions about Disney’s proposed 21st Century Fox Inc. (FOXA) acquisition and future bidding for major sports programming.
Trading down 1.3% on Thursday afternoon, DIS reflects a 7% decline year-to-date (YTD) and a 13.6% loss over the most recent 12 months, underperforming the S&P 500's about-flat run and 11.9% return over the same respective periods. By comparison, NFLX has soared 63.9% in 2018 and 109.5% over the year. (See also: Netflix Skyrockets on Higher Subscriber Growth.)