Should Disney Sell Itself? Analyst Says Not Likely

Credit Suisse analyst Omar Sheikh expects Walt Disney Co's (NYSE: DIS) growth to heat up in 2018 and 2019 as he reiterated his Outperform rating with a $125 price target.

“After two years of slowing growth," Sheikh wrote, "we forecast DIS's EPS and FCF will re-accelerate in 2018/19, driven by Studio, Media Networks and declining capital intensity at Parks. We highlight the risk that further investment may be required to position ESPN for the future, but believe the valuation looks compelling at current levels."

Right Renewals For ESPN Are Disney’s Biggest Strategic Issue Going Forward

Sheikh believes positioning ESPN for the 2021 and 2022 sports right renewals for the MLB and the NFL will be key going forward.

“With domestic consumers leaving traditional distribution platforms at an accelerated pace, a direct-to-consumer strategy is becoming increasingly important, in our view," he said. "While we argue ESPN has a portfolio of rights and a brand which give it a formidable "moat", our only source of caution is that building a subscriber base of scale ahead of the renewals may require investment – for example lower affiliate fee growth in return for more flexibility on distribution, or even M&A."

Could Disney Sell Itself To A Distributor?

Sheikh highlighted that this could be a possibility as digital aggregators and distribution platforms grow, but this option appears unrealistic. However, he does believe “this is likely to remain a backstop theme for investors as the organic strategy develops in the coming quarters.”

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