Disney Gets a Price Target Bump from Morgan Stanley

Morgan Stanley has raised their price target on Disney this week, saying the company is “uniquely positioned” to move ESPN fully into streaming.

Veteran analyst Benjamin Swinburne raised his price target on shares of Disney, from $125 to $135.

According to the analyst, Disney “may be uniquely positioned to take the leap.” He reaffirmed his “overweight” rating on Disney’s stock as well.

Swinburne says the pay-TV bundle is continuing to unravel and general entertainment viewership is increasingly moving to streaming, a trend accelerated by COVID-19.

“Disney’s scale and ability to vertically integrate in general entertainment has positioned it as a long-term winner in streaming,” the analyst wrote. “Using ESPN’s still significant scale to better align sports fans with sports content is a logical next step.”

“Sports rights on TV are rising at a high-single-digit annual growth rate, while cord-cutting is driving down pay-TV revenues,” he also wrote. “If these trends continue, by the end of 2030 there will be little earnings left in the business of broadcasting sports. This would be a bad outcome for all involved, even team owners and players. The majority of revenues for all major leagues stems from TV rights.”

Swinburne estimates ESPN operating income will decline 10% to 15% a year through 2024. That downturn “has brought the network and the entire ecosystem to this point: The risk of unbundling ESPN may finally be worth the potential reward.”

An “all-Disney bundle” would offer “a greater chance at success,” Swinburne says. “But it gets more challenging over time,” the analyst cautioned. “Sports distribution offers challenges that do not exist in general entertainment. In contrast to Disney+ and Hulu, Disney cannot vertically integrate in sports, nor can it scale its business over a global footprint.”

Disclaimer: We have no position in Walt Disney Co. (NYSE: DIS) and have not been compensated for this article.