Disney (DIS) could be poised for rapid growth into 2019 as the market undervalues CEO Bob Iger's repositioning of the company.
Shares of the entertainment giant opened Thursday's trading up slightly, but have since see-sawed back downward as the market appears uncertain ahead of its earnings release after the market close.
Bullish analysts expect an upward trend and are building their case on streaming, valuation, and technical indicators that could make Disney a core holding for investors once again.
Analysts are keying in on the company's strong intellectual property holdings and its challenge to Netflix (NFLX) through the pending acquisition of Twenty-First Century Fox's (FOXA) Hulu stake, its own ESPN+ offering, and its upcoming "Disneyflix" release.
"Disney's breadth of earnings and depth of IP give it an important opportunity to maximize potential of acquired Fox assets, scale a DTC business, and drive healthy earnings growth," Morgan Stanley analyst Benjamin Swinburne said. "This report dives into the Fox assets, Hulu's potential, and a more ambitious Disney streaming service."
Based on his bullish take in regards to streaming services and existing intellectual property, which will be pulled entirely from chief competitor Netflix in 2019, he raised his price target to $135 from $130 in late October and reiterated a "Buy" rating for the stock.
As more consumers cut cords, this segment is likely to only promote further growth, especially as the House of Mouse holds control over some of the most popular movies hitting theaters year in and year out.
Netflix's challenge through its original content has further to go in that regard, giving Disney a head start in the more capital-intensive movie and television production business in the battle for Direct to Consumer leadership.
Also promoting growth for Disney is its relatively cheap valuation in relation to its peers and competitors.
According to FactSet, Disney's forward price-to-earnings ratio is less than one-fifth that of Netflix, despite its noted inroads into Netflix's core market. Given a tumultuous market in recent months, the more grounded valuation for Disney is giving investors a bit more confidence in the company and minimizes its downside.
These corrections suck and are painful but these are emotions that prevent rational investing. Look at the companies you really like and their valuations. The market likes lower PE stocks like Disney and Verizon right now. $DIS $VZ— Ross Gerber (@GerberKawasaki) October 29, 2018
Based on the valuation, there could be much more room to grow for the company as well.
"We believe the current media multiple are more about terminal value optionality than near term core trends," Barclays analyst Kannan Venkateshwar said. "There are few other names with a credible terminal value story other than Disney."
Venkateshwar said that the current valuation for the company does not account for the terminal value of the media giant. Thus, he raised his price target significantly to $135 from $105 per share and shifted his rating to "Overweight" from "Hold."
Technical Turning Point
Aside from the growth narrative and fundamentals, the technical indicators might benefit a Disney breakout as well.
"DIS is poised to break out any day now," Real Money technical analyst Bruce Kamich declared in his column this morning.
Kamich noted that the stock will need to break through $120 per share to become "clearly bullish" and run toward his upside price target of $135 per share.
A positive earnings release could certainly help the stock break through that threshold. Bullish investors focused on the technicals will certainly be watchful, as a small gain could help them pick up much more.