Goldman Sachs analyst Mark Wienkes initiated coverage on Disney (DIS) today with a Buy rating and $35 price target. Wienkes likes Disney (DIS) for all the reasons that he dislikes CBS. Unlike CBS, Disney has a solid lineup of programming, brands, content, and assets. Disney also has a broader portfolio of media platforms:
Disney’s asset mix is optimised relative to peers to extract superior returns per unit of content, whether it is new IP or a licensed property. The company’s assets are balanced among media with stable growth and those with opportunities for high-single-digit or better growth, while minimising exposure to areas with falling media consumption and ad share. This improves the company’s ability to monetise hit content relative to peers.
Wienkes also thinks that growth at Disney’s cable networks will continue to be strong, as the Disney channel benefits from the continued strength of Hannah Montana as well as the launch of High School Musical 3:
We estimate Disney’s Cable Networks will grow operating income at a 10% CAGR from 2008E to 2011E and subsequently; and contribute 80% of total company OI growth during the period. This compares to just ~50% during the 2005-2008E period and adds a relatively stable, visible growth ballast to the company. Our bottom-up analysis attributes ~70% of this growth to ESPN, where we estimate ~$1 billion in incremental operating income from affiliate fee increases against a backdrop of a stable sports-right cost increases.
Finally, Wienkes thinks that new franchises, the expansion of older franchises to new platforms, an agressive video game strategy, and exposure to growth in international markets, make Disney well positioned to outperform its peers:
We expect several other businesses to contribute to fundamental growth, with (1) new franchises leading the way; followed by (2) a more aggressive video game strategy; and (3) accelerating international growth. We anticipate growth in new cross-platform kids/tweens franchises will be the most prominent driver, with High School Musical and Hannah Montana reaching beyond cable to improve odds of success at the Studio in FY2009, and the successful launch of the Camp Rock platform building the pipeline.
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