Walt Disney Co (NYSE:DIS) caught a Wall Street downgrade Wednesday on valuation that highlights the way ESPN is becoming an albatross for the Disney stock multiple.
Stifel Nicolaus analyst Benjamin Mogil cut his rating on Disney stock to “Hold” from “Buy”, but maintained his target price of $110.
With DIS stock knocking on the door of $100 a share, the analyst’s target price leaves implied upside of roughly 10%, which is often the border between a hold and a buy.
Mogil is by no means down on Disney stock, however. It’s just that between the growth prospects and what the market is willing to pay for them, DIS looks tapped out. The issue is that EPSN and the rest of the media segment isn’t pulling its weight compared to the company’s other business. From the note to clients:
“From a valuation and growth perspective, we continue to see the company as somewhat of a split story … We continue to be of the view that the Studio and corresponding Consumer Products segments continue to deserve a strong multiple reflecting the very strong pipeline. On the other side of the ledger is the Media segment. While there has been some relief/reduced concern around the carriage and [pay TV] subscriber numbers at ESPN YTD, we estimate that F2017 will be a likely flat year. We also continue to view the sports rights license environment as one which despite [pay TV] subscriber concerns continues to favor the rights holder and we expect continued inflation in this area.”
The Bottom Line on Disney Stock
With ESPN struggling with flat growth and higher content costs, there’s a big weakness in the middle of the company’s most important business segment.
DIS has a lot going for it, but as long as the ESPN problem remains, the earnings multiple is going to be constrained.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
