Shares of Walt Disney Co. have been facing some challenges on Wall Street recently, but one analyst believes that now is the time to buy.
Ric Prentiss from Raymond James has initiated coverage of Disney’s stock (DIS) with an outperform rating and a target price of $97. He sees this as an attractive entry point, especially since the stock is approaching its lowest valuation since 2019. This valuation is based on the company’s enterprise value to adjusted earnings before interest, taxes, depreciation, and amortization.
There are certainly some questions surrounding the company at the moment. Prentiss acknowledges this, pointing to issues such as Disney’s planned purchase of Comcast Corp.’s (CMCSA) one-third stake in Hulu, the potential sale of linear-TV assets, leadership uncertainty, and the future of ESPN.
In addition to these challenges, there are other factors affecting the near-term outlook for Disney. These include the cyclical advertising downturn, broader macroeconomic fears, and disappointing recent box office results. However, despite these concerns, Prentiss remains positive about the long-term return prospects for the company.
It is worth noting that Disney shares have dropped 21% over the past year and have significantly underperformed the S&P over a multiyear period.
- Disney faces mounting challenges, but its Hulu ‘overhang’ could resolve sooner than expected
- ESPN’s ‘melting iceberg’ is yet another challenge for Disney, analyst says
Disney’s Strong Intellectual Property Portfolio Drives Returns on Content Investments
Prentiss said he is upbeat about Disney, in part thanks to what he calls “the strongest portfolio of intellectual property” within the media sector.
The Power of Intellectual Property
In the world of media, intellectual property (IP) plays a crucial role in generating returns on content investments. Prentiss acknowledges the significance of IP in establishing an immediate connection with audiences. This connection serves as a compelling reason for viewers to engage with the content, reducing investment risks.
Disneyland: A Reliable Asset
Prentiss appreciates the stability offered by Disney’s parks, experiences, and products segment. Despite recent disruptions caused by the COVID-19 pandemic, this segment remains a reliable and cash-producing asset. Given the uncertainty surrounding Disney’s other businesses and the industry’s expensive transition from linear to streaming platforms, this stability is especially valuable.
Assessing Other Media Names
Apart from Disney, Prentiss also provides coverage for Paramount Global (PARA) and Warner Bros Discovery Inc. (WBD). While he gives a market-perform rating to Paramount Global, he takes an outperform stance on Warner Bros Discovery Inc.
Paramount Global’s Linear TV Exposure
Prentiss notes that Paramount Global heavily relies on linear TV for revenue, with 54% coming from advertising and affiliate fees, and an additional 13% from TV licensing and other sources. In comparison, Disney has a lower exposure at 28%, and Warner Bros Discovery Inc. sits in between at 44%. As TV viewership continues to shift towards streaming platforms, this heavy reliance on linear TV could pose challenges for Paramount Global in the long run.
(revised by OpenAI)
WarnerMedia and Discovery Merger: Unleashing New Potential
In the wake of the merger between WarnerMedia and Discovery, the possibilities for the newly formed company are brimming with promise. The integration of WarnerMedia’s assets with Discovery’s extensive repertoire has given rise to “significant synergies,” according to Warner, a spokesperson for the company.
The fusion of WarnerMedia and Discovery signifies a momentous step forward, setting the stage for an exciting chapter of growth and innovation. With a renewed focus on leveraging their combined strengths, this synergistic collaboration is bound to reshape the industry landscape.
As the newly merged entity charts its course, it embraces a future filled with potential – a future where possibilities are limitless.