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Wall Street analysts stick by Disney after earnings miss: 'We love it on any weakness'

Key Points
  • "While Fox's F3Q earnings contribution came in below expectations, we remain confident in the long term opportunity to improve operating performance and leverage its IP to drive Disney's direct-to-consumer strategy," Morgan Stanley said.
  • "Our F4Q and FY2020 estimates come down on our view of a longer FOX reinvigoration process, though our long-term value creation outlook remains unchanged," Guggenheim said.
Robert Iger, Chief Executive Officer of Disney, poses in "Star Wars: Galaxy's Edge" during a media preview event at Disneyland Park in Anaheim, California, May 29, 2019.
Mario Anzuoni | Reuters

Walt Disney may have reported a bit of a "messy" third quarter earnings report on Tuesday after the bell but Wall Street analysts still believe in the stock.

The company missed expectations on the top and bottom line and blamed the integration of Fox's entertainment assets, a theme parks drag, and streaming investments.

Shares of the company were down over 4% to $135.31 in early trading.

"In our view, the investment thesis is the same and if we liked the stock before earnings, we love it on any weakness," J.P. Morgan analyst Alexia Quadrani said.

The analyst chalked it up to just a lot going on at one time at the entertainment giant.

"With so many moving pieces between the newly acquired Fox and Disney+ launch, there are bound to be some hits and misses each quarter," she said.

The feeling was mutual from analysts at Citi who said that even though the stock may trade down after the earnings report, the company is still on the right path.

"There was nothing in these results that suggest that Disney's broader strategic pivot isn't on track. As such, we remain buyers," they said.

One analyst with a neutral rating on the stock admitted that while the report wasn't great, it's not going to be enough to shake investor confidence in Disney.

"We expect that investors who are excited about the company's transition to streaming and the upcoming Disney+ launch are unlikely to be shaken loose by even an estimate cut of this magnitude, and even though this cut was related to Disney's traditional businesses," Credit Suisse said.

Here's what Wall Street analysts are saying about Disney's earnings report:

J.P. Morgan - Overweight rating

"In our view, the investment thesis is the same and if we liked the stock before earnings, we love it on any weakness. With so many moving pieces between the newly acquired Fox and Disney+ launch, there are bound to be some hits and misses each quarter. Near-term, 21CF will continue to make modeling this company a challenge and remain dilutive to results."

Guggenheim- Buy rating, price target to $155 from $157

"The first quarter of fully-consolidated FOX results came in below consensus expectations, which were a bit messy to begin with given the complicated nature of the transaction. Management noted the challenges of maintaining focus during the regulatory review process, driving weaker performance at studio businesses, while STAR also dragged. Our F4Q and FY2020 estimates come down on our view of a longer FOX reinvigoration process, though our long-term value creation outlook remains unchanged."

Bank of America- Buy rating

"Walt Disney's F3Q results were below forecast, reflecting significantly greater than expected dilution from the 21CF acquisition and weaker results at Parks, Experiences & Consumer Products, with the former weighed down by Studio/Star India losses and the latter reflecting deferred visitation / crowd mgmt. / preopening exp. impact from Star Wars Land. We view both of these items as temporary set-backs that do not alter the long term trajectory of the company."

Barclays- Overweight rating

"Overall, while the quarter wasn't great and earnings visibility in the story is likely to be limited in the upcoming quarters, the impact on Disney stock is likely to be limited going into the Disney+ product launch. Disney also has some other drivers that should limit earnings risk in the coming quarters such as affiliate negotiations and synergies. Therefore, while we expect the stock to be range bound given the run up since investor day, we do expect it to outperform other names in media."

Goldman Sachs- Buy rating, price target to $148 from $150

"DIS also announced a $12.99 bundled US price for Disney+, ESPN+ and Hulu with ads, which is a ~$5 discount to aggregate a la carte prices. Paid subs for ESPN+ are 2.4 mn paid subscribers (up 400k since Feb-19) and for Hulu are 28 mn (+1.2 mn since May-19). We reduce our FY19/20/21E EPS by 14% on average reflecting the F3Q miss and updated F4Q guidance."

Morgan Stanley- Overweight rating

"While Fox's F3Q earnings contribution came in below expectations, we remain confident in the long term opportunity to improve operating performance and leverage its IP to drive Disney's DTC strategy."

BMO- Outperform rating

"So we are buyers on any weakness as the catalyst path remains visible and robust and we continue to like the DTC story's emergence into C1H20."

Credit Suisse- Neutral rating

"We expect that investors who are excited about the Company's transition to streaming and the upcoming Disney+ launch are unlikely to be shaken loose by even an estimate cut of this magnitude, and even though this cut was related to Disney's traditional businesses."

Needham - Hold rating

"We project DIS will win (and NFLX lose) the US SVOD battle because Disney+: a) has a price 30%+ (at $7/month and $70/year) below Netflix; b) will have most Pixar, Marvel, Star Wars and Disney princess films at launch on Nov 12, 2019; c) DIS products reach 100mm households/year, which lower DIS+ customer acquisition costs; d) DIS has announced a $12/month bundle of Disney+ and Hulu and ESPN+, which lowers churn; e) DIS's strong balance sheet and FCF gives DIS more staying power than NFLX; and f) DIS has several content creation studios under its corp umbrella."

Citi- Buy rating

"Disney reported revenue, EBIT, and adjusted EPS that came in below the Citi and the Street. As such, we expect Disney shares to be weaker [today]. However, there was nothing in these results that suggest that Disney's broader strategic pivot isn't on track. As such, we remain Buyers."