Wall Street traders beat up on The Walt Disney Company after its fiscal Q4 numbers were released. But analysts Anthony DiClemente and Bo Tang at Barclays Capital have delved deeply into the quarter and found some things to like.
Yes, Disney “missed” Wall Street expectations. However, the analysts said, “One-time items and the reflection of one less week of operations obfuscated ‘apples-to-apples’ trends, and there were four things that came out of the conference call that we believe support a positive view on shares:
1) EPS was $0.50 (vs consensus of $0.47) when adjusting for one-time items. Acknowledging that content amortization is arguably a cost of doing business, given the $100M above-the-line writeoff at the studio’s IMD venture as well as $58M of programming write-offs at Lifetime, both above the line, DIS EPS would have been $0.50, or $0.05 above the published diluted EPS excluding certain items of $0.45.
2) Parks pricing and volume turn positive. Attendance in the 4Q was positive at the domestic theme parks at +1% Y/Y after adjusting for the extra week in the prior-year quarter. Per-capita guest spending was +6% and average room spending was +5%. For Q1, domestic hotel bookings are pacing 5% ahead of the prior year so far (vs our +3% previously modeled), indicated that pricing and volume have both turned positive.
3) Advertising better when normalizing for extra week. Adjusting for the impact of the extra week in last year’s Q4 as well as timing of major sports events, DIS estimates that ESPN’s real rate of ad growth was +22% (fastest growth in the cable TV group) vs. 19% reported. Similarly adjusting for the 53rd week at the ABC TV stations, ad revenue was up 26% vs. 15% reported.
4) Buyback better than expected. Disney repurchased $1.18B of stock in the reported quarter, exceeding repurchases necessary to offset dilution from the Marvel transaction. In the current quarter thus far, Disney has bought back over 11M shares for about $392M, and so return of capital remains a positive for the story.”
The Barclays analysts are sticking with their “Overweight” stock rating and a target price of $42 for The Walt Disney Company. The stock recovered Friday after selling off late Thursday. It closed at $37.75, up $1.82 for the day.