Disney (DIS - Free Report) stock popped Thursday on the back of Goldman Sachs’ (GS - Free Report) new bullish price target and general optimism. Still, shares of Disney are up just 4% this year and have moved practically sideways compared to its industry’s 17% climb and the S&P 500. At this point, however, investors are looking to Disney’s streaming future that has been bolstered by the official completion of its $71.3 billion 21st Century Fox (FOXA - Free Report) deal.
With that said, let’s look ahead to see what is next for Disney as it prepares to fight Netflix (NFLX - Free Report) , Amazon (AMZN - Free Report) , and soon enough Apple (AAPL - Free Report) and other giants in the streaming entertainment market.
Goldman Sachs analysts on Thursday slapped a $142 per share price target on Disney and reinstated a “buy” rating. The new 12-month price target implies 26% upside from DIS’ closing price of $112.52 per share on Wednesday.
The investment banking giant pointed to Disney’s Fox deal and its streaming plans as major reasons for its positivity. “Despite our expectation for near-term investment headwinds, we view Disney+ as a positive long-term strategy given the rising importance of developing direct to consumer relationships, with higher long-run margins and better customer data about consumption,” Goldman analyst Drew Borst wrote in a note to clients Thursday.
More specifically, Goldman analysts believe that the soon-to-be-launched Disney branded stand-alone streaming services will hit 7.5 million total subscribers by 2020 and skyrocket to 73 million by 2025. For perspective, Netflix expects to add 8.9 million paying subscribers in Q1 to reach 148.16 million. Goldman also said they expect Disney to eventually introduce a “mass market streaming bundle” that incorporates all of its platforms in order to better compete against more established rivals.
Disney now owns Fox’s movie and television production studios, Fox Searchlight, the FX cable network, and National Geographic properties. The deal, which closed in March and is by far the largest acquisition in company history, also saw it acquire a controlling stake in Hulu. Disney now owns 60% of the streaming company and has reportedly been in talks to with AT&T (T - Free Report) to buy out the 10% stake that WarnerMedia owns, with the remaining 30% under Comcast’s (CMCSA - Free Report) control.
The company plans to demonstrate Disney+ and showcase some of the exclusive new original content, which is said to include a new Star Wars show and much more, at its investor day on April 11 and also detail its overall direct-to-consumer push. Disney executives have said Disney+ will cost less than Netflix because the library will be less expansive.
Disney’s broader DTC push also includes ESPN+, which was launched in April 2018 at $4.99 a month, and already boasts over two million subscribers, despite not offering access to the sports giant’s biggest products such as the NFL, NBA or big-time college sports. ESPN+ has instead, for now, focused on offering more niche products such as soccer and UCF.
Yet down the road it’s not hard to imagine a completely stand-alone version of ESPN that allows users to add on more offerings. In the end, a bundle that features Disney+, ESPN+, and Hulu might be highly attractive in a streaming entertainment age that is getting more crowded and more expensive.
Disney now owns National Geographic and Fox’s studios that include hits franchises such as The Simpsons, Modern Family, Avatar, Deadpool, and many others. Paired with its own brands, Pixar, Marvel, and Lucasfilm, the new Disney looks ready to dominate the box office and offer streaming options that users will soon find nowhere else. On top of that, Disney should see its theme park business grow along with its toy and merchandise offerings.
Looking ahead, Disney’s bottom-line looks set to suffer as it spends heavily on its new streaming future. Our current Zacks Consensus Estimates call for the company’s adjusted Q2 fiscal 2019 earnings to sink 11.4% on the back of a 0.73% decline in revenue. Despite the near-term negativity, the company is projected to see its full-year revenue soar 10.7% to $65.79 billion, with 2020’s revenue expected to come in 11.8% higher than our current-year estimate.
Disney’s adjusted full-year EPS figure is projected to slip 2.4%. Peeking ahead, the company’s adjusted 2020 earnings are expected to pop 3.1% above our current-year estimate. With all that said, Disney is ready to play the long game and is in the midst of racing into a new era. Plus, the company has a solid history or earnings beats in recent periods, including an 8.7% average surprise during the trailing four periods.
Disney stock popped 1.44% to $114.18 per share through morning trading Thursday on the back of Goldman’s positivity. Shares of DIS rest roughly 5% below their 52-week high but could have room to climb if Wall Street is pleased with what they see at the company’s upcoming investor day.
Meanwhile, Disney is a dividend payer with a yield of 1.54% and is trading at 16X forward 12-month Zacks Consensus EPS estimates. This marks a discount compared the S&P’s 17X, its industry’s 18.8X, as well as its own five-year high of 22X and 16.7X median, which means its valuation picture appears rather attractive at the moment.
Disney is scheduled to release its Q2 financial results on May 8.
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