Investors should look to Disney as an investment for the future, Wells Fargo says. Analyst Steven Cahall maintained his overweight rating on the stock and lowered his price target to $110, a $36 cut. Still, the new target implies a 34.7% upside from where shares finished Friday. “To us, DIS is the most interesting stock in Media: an IP powerhouse down on its luck, at a COVID price and historically low multiple,” Cahill said in a Tuesday note. “Approaching CY24, we think the longer-term DTC earnings/margins story begins to emerge as the key reason to own DIS in duration… we think the bad news is mostly baked in.” Shares were about flat on Tuesday. The stock has declined about 6% this year, as the company faces Disney+ subscriber losses , headwinds from a reduction in ad budget and streaming competition with Netflix’s new ad tier. Disney has also recently been at odds with Charter Communications after the two companies failed to reach a new carriage agreement, partly driven by the fees Disney is seeking for its bundle programming. Disney-owned channels include ABC, ESPN and FX. The company also owns a majority stake in Hulu. Cahill offered a bull and bear case for Disney, with his bull case putting the stock at a value of $145 per share, and his bear value resting at $75 per share. Under his bull case, the analyst pointed out positive catalysts for the company, including Disney’s “remarkable IP library.” With kids and families comprising two-thirds of core Disney+ subscribers, Cahill thinks the story of Disney+ will now be about its price and margins, not its subscriber growth. “We think D+ is massively under-priced vs NFLX on $/mo ARPU per $bn content value incl. DIS library, so we’re bullish on price hikes,” Cahill said. If Disney licensed its library, he said it would generate about $11 billion in annual revenue and be worth about $55 billion using conservative studio/IP multiples. The Wells Fargo analyst added that Disney’s direct-to-consumer business’s longer-term DTC earnings and margins will “emerge as the key reason” to own the stock. To be sure, Cahill said the short-term outlook is risky due to DTC subscription churn on price hikes and Disney’s ongoing dispute with Charter. The analyst’s bear case noted that the entertainment giant’s content will take time to improve, with its box office and Disney+ subscriptions expected to suffer in the meantime. Additionally, if ESPN does not transition well to Disney’s DTC business, the analyst said that could create a “long-term EPS hole.” — CNBC’s Michael Bloom contributed to this report.
