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Investors need to stop beating up media stocks like Disney because of Netflix, Wells Fargo says

  • Disney trades at 15 times forward price to earnings — the "trough" level where the shares bottomed out during the previous four years, Wells Fargo says.
  • "Investors may need to start thinking about increasing exposure to those media cos. with solid streaming strategies, such as … Disney," the firm's analyst wrote.
Bob Iger, chairman and chief executive officer of The Walt Disney Co.
Patrick T. Fallon | Bloomberg | Getty Images
Bob Iger, chairman and chief executive officer of The Walt Disney Co.

Disney's upcoming internet video streaming services will thrive, according to one Wall Street firm.

Wells Fargo raised its rating on Disney shares to outperform from market perform.

Disney announced plans last month to launch a branded direct-to-consumer streaming service in 2019 and an ESPN streaming service in 2018.

"With Disney's foray into direct-to-consumer (DTC) streaming, we can't help but believe the TV ecosystem will soon embark on an accelerated over-the-top (OTT) path," analyst Marci Ryvicker wrote in a note to clients Monday. "Thus, investors may need to start thinking about increasing exposure to those media cos. with solid streaming strategies, such as … Disney."

Disney has underperformed the market this year with its shares down 3 percent in 2017 through Friday, compared with the S&P 500's 11 percent return.

Ryvicker raised her price target for Disney to $116 from $109, representing 14 percent upside from Friday's close.

Ryvicker said Disney's new entertainment streaming service will replace Netflix as the exclusive site for Disney and Pixar-branded movies when it launches.

She also noted the company's valuation of 15 times forward price to earnings was the "trough" level where the shares bottomed out during the previous four years.

"We like the entry point for DIS even if we're early. … We view the risk/reward as heavily skewed to the upside," she wrote. "We continue to believe Disney is a premium brand with one of the best management teams in media."

Shares of Disney rose 1 percent in early trading Tuesday.

— CNBC's Michael Bloom contributed to this story.