Shares of Walt Disney Co. haven’t been getting much love on Wall Street lately, but one new bull sees a buying opportunity.
Raymond James’ Ric Prentiss initiated coverage of Disney’s stock
with an outperform rating and $97 target price Monday, cheering an “attractive entry point,” as the stock nears its lowest valuation since 2019, based on the company’s enterprise value to adjusted earnings before interest, taxes, depreciation and amortization.
Admittedly, the company faces “more questions than answers right now,” according to Prentiss, who pointed to issues like Disney’s expected purchase of the one-third stake in Hulu currently owned by Comcast Corp.
a potential sale of linear-TV assets, leadership uncertainty and the future of ESPN.
“And with added issues like the cyclical advertising downturn, broader macroeconomic fears, and disappointing recent box office results, we think the near-term outlook and trading could be choppy, but remain positive on the long-term return prospects,” Prentiss wrote.
His bullish initiation comes as Disney shares have dropped 21% over the past 12 months and as they’ve lagged the S&P meaningfully over a multiyear span.
Prentiss said he is upbeat about Disney, in part thanks to what he calls “the strongest portfolio of intellectual property” within the media sector. “We believe IP is very important in driving returns on content investments, as it gives audiences an immediate connection to the content and a reason to watch, which we think reduces the risk of investment,” he wrote.
He also said he likes the cushion that Disney’s parks, experiences and products segment provide.
“A stable (excluding recent impacts from COVID), cash-producing asset is all the more important given the uncertainty around Disney’s other businesses and the entire industry’s costly transition from linear to streaming,” Prentiss said.
More from MarketWatch: Disney may be near a ‘turning point’ — for better or worse
He also began coverage of a pair of other media names, slapping a market-perform rating on shares of Paramount Global
and taking an outperform stance on shares of Warner Bros Discovery Inc.
Those names have also been laggards in recent years.
“As TV viewership and revenue shift from linear to streaming, Paramount remains heavily exposed to Linear TV (54% of revenue from advertising and affiliate fees, plus 13% from TV licensing/other) compared to large media peers like Disney at 28% and WBD closer at 44%, and the decline of linear should continue to be a headwind,” Prentiss wrote.
As for Warner, he cheered “significant synergies” for the company, which was formed by the merger of WarnerMedia and Discovery. The combination “created additional scale through the Max integration, and we think should drive better subscriber acquisition, lower churn, and stronger pricing power,” he wrote.