Ahead of Disney earnings report, the Street eyes ESPN and Iger, analyst says

Street eyes ESPN number in Disney's Q1: Pro

ESPN's subscription rates will be a key indicator for investors as they parse Disney's earnings report, to be released after Tuesday's closing bell, analyst Michael Morris told CNBC.

The company is expected to post earnings of $1.50 a share on revenue of roughly $15 billion. The Street will be watching ESPN's subscriber growth rate, which continues to be threatened by cord cutters as people lose interest in subscribing to cable.

"ESPN is absolutely the big number at the company," Morris said Tuedsay on "Squawk Box," noting that 40 percent of Disney's profits come from its cable networks, and ESPN brings in the largest portion in that segment.

"It is significant, and investors will continue to look at the subscriber trends [in] that business for an indication of the future value of the company," said Morris, a media analyst at Guggenheim Securities.

CEO Bob Iger told investors last quarter that ESPN would succeed over the long term, and that Disney would target its near-term growth issues. Investors will want to see progress.

Morris said a subscription revenue growth rate above 4 percent would be seen positively on Wall Street.

Analysts and investors will also be waiting to hear about Iger's next move. With only 16 months left until his planned retirement and no successor in sight, investors hope he'll announce a contract extension.

Shareholders hope Iger, who has been at Disney's helm for over a decade, will stay to find a long term solution to ESPN's growing pains and help the company adapt to the digital era.

On Monday, The Wall Street Journal reported that Iger may delay his departure again.

"If Mr. Iger, who by all measures has been a tremendous leader of the company, were to stay on for perhaps an additional two years, giving the company the opportunity to find a more qualified successor, I think that would be well received," Morris said. "But his shoes are incredibly big and will be difficult to fill."

Analysts and shareholders are also eyeing Disney's films and parks for growth opportunities. Four Marvel and two "Star Wars" films from the mouse house's 2018 lineup could offset ESPN's sluggish growth.

The opening of the "World of Avatar" in Florida's Walt Disney World, based on James Cameron's hit science fiction film, should help boost East Coast park attendance.

Morris said Disney is coming off a major growth cycle for its parks, during which volume and price were expanding rapidly. Now, as the parks move closer to their capacity, Disney's focus has landed squarely on handling the growing number of guests, he said.

"They really have been focused on price, I think, to ... mitigate some of the challenges that come with attendance growth," Morris said. "But the intellectual property of the company is so strong, it continues to drive people into the parks. It's a capital-intensive business, but it's a tremendous business."

Shares of Disney were trading at $109.89 at market close on Monday, down just over 0.6 percent. Over the last three months, shares rose 16 percent.

—CNBC's Landon Dowdy contributed to this report.