Wells Fargo’s Marci Ryvicker says her company is much more optimistic about the company’s prospects than it was at the beginning of the year. They liked what they were seeing in January, but felt the positives were already being felt in terms of its stock valuation. It was also facing the possibility of decreased margins at ESPN and declines in the ratings of its children’s programming. Other factors (improvement at parks, lower capex, were said to have already been factored into valuations).
“Fast forward to today, and the truth is our fears appear unwarranted,” said Ryvicker. “We understand that DIS is a consensus long but we think estimates are too low and that the stock may actually break out of its current mid to high $40-range on this coming earnings call. If we are wrong and DIS misses expectations, then we would view a pull back as a great entry point given our increased confidence in the long-term story.”
The upshot is the company is now rated outperform, up from market perform. And its valuation target has moved up dramatically from $44-$46 to $56-$58.
Among the differences between now and then are better-than-expected improvement at the parks, and the potential for margin expansion (rather than contraction) at ESPN. Also working in the company’s favor is its relatively low exposure to fluctuations in the advertising market – Wells Fargo places it at 20%.
Ryvicker concluded, “…we are raising networks for higher affiliate fees; parks for greater attendance and price hikes; and film and consumer products for The Avengers.”