J.P. Morgan Hikes Disney Estimates, Says Stock Still 'Top Pick'

• Walt Disney Co (NYSE: DIS) shares have plummeted 12 percent since July 8, trading close to the $100 mark through September.
• JP Morgan’s Alexia S. Quadrani maintained an Overweight rating on the company, with a price target of $130.
• Quadrani said that the company is likely to report solid F4Q results, and continues to have a strong positioning compared to its Media peers.

Analyst Alexia Quadrani mentioned that Disney continues to be JP Morgan’s Top Pick in the Media, “given its strong positioning compared to its peers with continued strength across all segments.”

Quadrani expects Disney to report robust FQ4 results, which were boosted by an extra week that impacts all segments of the company. The EPS estimate for the quarter has been raised from $1.15 to $1.16, to reflect higher advertising estimates at both Cable and Broadcast.

The performance of both Cable and Broadcasting at Media Networks was boosted by “increased demand, sell-through rates, and pricing gains in the Upfronts at ESPN and industry-leading price gains in the Upfronts at ABC with scatter pricing pacing modestly above upfront levels when the company reported earnings in early August,” Quadrani wrote.

In the report JP Morgan notes that SEC Network drove affiliate growth in F4Q. The performance by Parks was healthy, benefiting to some extent from Disneyland’s 60th anniversary celebration. Moreover, price hikes by Disney are “warranted” and should help the company achieve continued margin expansion going forward.

Quadrani added that although Ant-Man was the only major release, the Star Wars release is expected to boost Disney’s results in the first half of F2016.

The EPS estimate for F2016 has been raised from $5.55 to $5.62, mostly to reflect an increase in the buyback assumption to $3b in FQ4.

“We continue to look to the theatrical release of Star Wars on Dec. 18th and the opening of Shanghai Disneyland next spring as near-term catalysts with the potential for growing investor interest around these events, in our opinion,” the analyst said, while adding that the company is “one of the top global brands that should continue to drive above average growth for many years.”