What Kind Of Company Is Disney?

March 31, 2015

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In a report published Tuesday, Morgan Stanley analyst Benjamin Swinburne commented that Walt Disney Co (NYSE: DIS)’s premium has widened compared to both media peers at consumer staples.

According to Swinburne, Disney’s incremental EBIT growth stemming from activities outside of the TV ecosystem has led to its valuation appearing “full” while the valuation also factors in the benefit of an “incredibly strong” creative run stemming from film-related outperformance.

Swinburne said that while ESPN advertising should benefit in the second quarter from the NFL and college football playoffs, overall TV advertising remains “tepid” for the industry, and Media Networks estimates have been revised lower over the last year. Switching to the big screen, the analyst stated that current valuation already “bakes in” content success, including two “Star Wars” films and a “Frozen” sequel, among other major upcoming releases.

Swinburne explained the reasoning behind his Neutral rating and $110 price target:

“In F1Q15, Disney’s Studio and Consumer Products (CP) accounted for 60 percent plus of incremental EBIT and, together with Parks, should represent over 45 percent of total segment EBIT by FY16. Disney trades at nearly 12x CY16E EBITDA, ~2 turns ahead of both Twenty-First Century Fox Inc, which is expected to deliver double-digit EBITDA growth over the next three years, and the larger media group.

“If we comp Disney media assets to Twenty-First Century Fox’s current multiple, the implied value for remaining assets is ~13x CY16E EBITDA. Our $110 price target 19.5x CY16E EPS, modest multiple compression versus current ~21x forward P/E with growth expected to moderate following low double-digit EBIT growth in FY15/16.”