- Morgan Stanley analyst Benjamin Swinburne reiterated an Overweight rating on the shares of The Walt Disney Company (NYSE:DIS) and lowered the price target from $120 to $110.
- The analyst continues to believe Disney’s media businesses are under-valued and under-earning.
- The analyst’s forecast of roughly 5-10% EBITDA margin for its media businesses in 2023, reflecting the view of an under-earning business.
- The returns Disney’s media assets (DMED) generating against its revenues and invested capital should be higher than they are today, said the analyst.
- The analyst noted that ESPN DTC may be coming sooner rather than later, presumably a new NBA agreement is one of the major remaining gating items.
- The analyst thinks Disney should offer a compelling product to cord-cutters to drive demand, a product that is more than just ESPN’s networks over-the top.
- Also, it should maintain existing distribution economics with pay-TV operators so DTC growth is largely incremental, added the analyst.
- Regarding Hulu, the analyst believes the likely financing cost is modest and the long-term benefits of owning Hulu is potentially meaningful.
- The analyst lowered Disney’s Media revenues and operating income at both linear networks and DTC.
- Also Read: Disney’s Pixar Trims Workforce By 75: Is Lightyear’s Box Office Disappointment To Blame?
- At linear networks, the reduction is roughly 50/50 advertising (general entertainment) and distribution (cord-cutting, lower affiliate fee growth).
- At DTC, the revenue reduction is 60/40 advertising (Hulu) and subscription (lower Disney Plus net adds), offset near term by reducing expenses.
- The analyst concluded that Disney is in the midst of restructuring its Media operations and earnings optimization will take time.
- Price Action: DIS shares are trading higher by 0.99% at $91.90 on the last check Tuesday.
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