It’s been a tough period for Disney, with layoffs at ESPN and soft attendance at their theme parks. However, Rosenblatt Securities analyst Barton Crockett still sees potential for the media giant’s stock.
In his recent report, Crockett acknowledged the current hiccups but expressed confidence in Disney’s ability to improve. He explained that smaller crowds at Disney’s Orlando parks were expected due to tough comparisons to the same period last year, which included promotions for Walt Disney World’s 50th anniversary.
Additionally, Crockett’s sum-of-the-parts analysis offers a base case for the shares, highlighting the asset value that is likely to be realized one way or another. If Disney can’t turn things around quickly, a breakup of the company could be a hedge.
Crockett identified potential breakup scenarios, such as a spinoff of the parks business or TV networks. He suggested selling the networks to financially driven buyers who would capitalize on the cash flow, similar to AT&T’s exit from DirecTV. Another option could be letting go of just ESPN.
Over the past three months, Disney’s stock has declined by 13% while the S&P 500 has risen by 7%. Despite the challenges, Crockett maintains a buy rating on Disney shares.
Disney’s Untapped Potential in Streaming
Potential suitors are beginning to recognize the immense value in Disney’s content engine and streaming enterprise. According to Crockett, these suitors see the potential for Disney to trade as a valuable content library with an attached streaming service. In fact, this split/sale process is comparable to Lions Gate’s current situation. Alternatively, a tech giant like Apple could be interested in acquiring Disney’s iconic content.
Although many other media companies have dual-class share structures, Disney stands out by having a more responsive approach to shareholder desires for a breakup. This makes the company an attractive target for potential buyers. Laura Martin from Needham acknowledges this compelling shareholder setup but rates the shares at hold.
Martin also points out that Disney has no controlling shareholders, which reduces the likelihood of a takeover being blocked. She predicts that the company will likely be purchased within the next three years. Historically, media companies with AAA libraries have received takeover premiums ranging from 30-40% above the public trading price. Considering that Disney has the best assets in the media business and no permanent CEO or CFO with conflicting agendas, it is primed for a successful acquisition.
Ultimately, it seems that the synergy between Apple and Disney could create even greater value when combined. The analysts agree that these two powerhouses are “worth more together.”
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