Barclays Capital analysts Anthony DiClemente and Bo Tang have a “neutral” rating on the media sector, but have reiterated their “overweight” rating on one of the stocks. That buy recommendation is for The Walt Disney Company.
“Shares of Disney are 7% below their 3/3/11 highs and have lagged the S&P 500 by nearly 400 bps due to a combination of concerns about oil, Japan, and a recent Studio film release, in our view. However, we remain constructive at current levels given Disney’s late-cyclical upside, attractive growth-adjusted valuation, and progressive digital strategy. Disney remains our top pick for 2011. We are raising our second half 2011 and 2012 estimates and taking our price target to $52 from $50,” the analysts wrote in an update to clients.
DiClemente and Tang said they do not expect rising gas prices to delay the recovery taking place at the Disney theme parks. Yes, the park in Japan has been impacted by that nation’s tragedy, but they see that as having an impact of no more than two cents to fiscal year 2011 earnings per share.
They note that Disney’s stock has been trading at an 11% discount to the Consumer Discretionary sector, but they expect it to grow faster than the sector as a whole through 2012 “On a growth-adjusted basis, valuation is approaching the lowest levels in the last decade, excluding the financial crisis,” they noted.
On the media side, the two say Disney may be helped to gain relevance on new platforms because of its progressive digital strategy, as it has been experimenting with short-term deals to drive incremental revenues on new platforms.
The bottom line is that the Barclays analysts have increased their estimates for ESPN and the theme parks, raising their EPS estimates for each of the next two years by nine cents to $2.70 for the current fiscal year and $3.10 for fiscal 2012. As a result, they have raised their price target by two bucks to $52. The stock closed Wednesday (3/24) at $42.24.
