A Wall Street analyst modelled the impact of Disney's new streaming service — and now he's even more bullish on the stock

Disney
  • Disney started its direct-to-consumer (DTC) efforts in April 2018, launching the ESPN+ streaming service.
  • Disney said it also plans to launch another DTC service, Disney+, in late 2019, and that it would remove all its movies from Netflix this year.
  • Disney’s Direct-to-Consumer & International business will take a bite out of its earnings per share in the fiscal year 2020, but won’t put pressure on the stock value, according to analyst Todd Juenger at Bernstein.
  • Watch Disney trade live here.

Disney‘s new direct-to-consumer (DTC) streaming business will take a bite out of its profits in the next few years, but that won’t stop its stock value from rallying, an analyst says.

“The (obvious) bullish view is: the downward revisions and DTC losses won’t matter to the stock,” said Todd Juenger at Bernstein in a note out on Friday.

Disney started its DTC service efforts in April 2018, launching the ESPN+ streaming service. ESPN+ hit $US1 million subscribers in September. The company also plans to launch another DTC service, Disney+, in late 2019.

Disney labelled these two services and other international channels as Direct-to-Consumer & International (DTCI). Disney disclosed in an SEC filing earlier this month that its DTCI division had lost $US738 million in operating income for the first nine months of 2018, on revenue of $US3.4 billion, though most of that came from the international channels.

“Disney will need to absorb around 10 years of cash outflows, before they will turn positive,” Juenger said. He estimated $US400 million of EBITDA in 2030 for the unit.

Based on the calculation of Disney’s DTCI business, Juenger lowered his EPS forecasts for Disney from $US7.67 to $US6.46 in the fiscal year of 2020. But he raised his price target from $US114.00 to $US119.00 – 7% above where shares are trading on Friday.

Usually, downward revisions of EPS would be a really good reason to have a negative view on the stock, Juenger said. But in this case, the revisions won’t put pressure on the stock because investors will do a sum-of-the-parts calculation, putting reasonable multiples on the legacy businesses, and the sum total will add up to more than the current enterprise value, he said.

Disney is flat so far this year.

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