Markets

This is going to be a 'transformational' year for Disney, Morgan Stanley says

Key Points
  • Morgan Stanley sees "a big year ahead" for Disney, reiterating its overweight rating for the media company.
  • "2019 is likely a transformational year for Disney," the bank's analyst Benjamin Swinburne says. "Stepping back from the complexity, it will exit the year in a different place than it begins."
  • The bank's 12-month price target of $135 would translate into a 23 percent gain.
An image of Mickey Mouse, the official mascot of The Walt Disney Company, is displayed outside the Disney Store in Times Square in New York City.
Drew Angerer | Getty Images

With the new theme park Star Wars Land opening this year and the Fox acquisition nearing the finishing line, Disney is setting itself up for a transformation, according to Morgan Stanley.

The bank sees "a big year ahead" for Disney, reiterating its overweight rating for the media company in a note on Thursday. Its 12-month price target of $135 would translate into a 23 percent gain based on Disney's Thursday trading level.

"2019 is likely a transformational year for Disney," the bank's analyst Benjamin Swinburne said. "Stepping back from the complexity, it will exit the year in a different place than it begins. Significant investments in content, theme parks, and M&A weigh on near-term earnings, but should set up the business for long-term growth."

It has not been easy for Disney trying to compete with streaming giants like Netflix.The media company recently revealed in a filing that its investment in Hulu was the primary contributor to a $580 million loss in equity investments. It also lost $469 million in its direct-to consumer-segment, largely from its streaming service BAMtech.

But the tides are starting to turn as Disney is poised to benefit from its acquisition of Fox, which Morgan Stanley predicts will lead to share repurchases of $5 billion in 2020. And its own streaming service Disney+, which is slated to debut this year, will drive subscription for ESPN and other cable nets, the bank said.

"We believe Disney can continue to deliver solid margin expansion at Parks and healthy growth in Studio OI, particularly with a strong content slate and continued ability to monetize on successful franchises," Swinburne said.

Morgan Stanley said Disney's cable affiliate revenues will grow 5 percent in 2019 and its theme parks will deliver 1 percent of annual margin expansion.