We have maintained our long-term Neutral recommendation on The Walt Disney Company (DIS - Analyst Report) with a target price of $53.00. Moreover, shares of Disney retain a Zacks Rank #3 (Hold).
Why the Reiteration?
Disney remains well positioned to drive revenue growth in the coming quarters through its strategic initiatives as the company continues to invest in its core businesses while expanding its operating margins.
Despite a difficult operating environment, the company did not change its strategies and remained focused on deploying its capital toward broadening its Parks and Resorts business, and in turn creating long-term growth opportunities.
Disney entered into several content distribution agreements with Comcast Corp (CMCSA - Analyst Report) , Netflix Inc. (NFLX - Analyst Report) , Cox Communications and Charter Communications Inc. (CHTR - Analyst Report) , which strengthen Disney’s multichannel subscription model by adding more platforms to deliver its content.
Going ahead, the company remains focused to generate increased income from affiliate deals and retransmission renewals. However, Disney listed a number of challenges that will negatively impact its financials in the upcoming quarter.
The first quarter of fiscal 2013 will see an increase of $170 million in domestic sports right costs, while home entertainment revenues are expected to remain low due to the difficult year-over-year comparison as the first quarter of fiscal 2012 included robust performance of Cars 2 and the Lion King.
Further, macro headwinds, higher tax rate (2% higher than the prior-year quarter) and effects of Hurricane Sandy are short-term deterrents.
Other Stocks to Consider
Other stocks in the media & entertainment universe worth considering are Time Warner Inc. (TWX - Analyst Report) , which holds a Zacks Rank #2 (Buy) and News Corporation (NWSA - Analyst Report) , which holds a Zacks Rank #3 (Hold).