Deutsche Bank says buy Disney's stock as the media giant goes all in on streaming

Published Tue, Sep 8 20208:18 AM EDTUpdated Tue, Sep 8 20208:42 AM EDT

(This story is for CNBC Pro subscribers only.) Deutsche Bank is getting behind Disney, betting its streaming service will allow the media giant to leverage and monetize its massive and growing subscriber base. The Wall Street firm upgraded the media giant's stock to buy from hold on Tuesday, sending shares of Disney up about 1% in premarket trading. Deutsche also hiked its 12-month price target to $163 per share from $128 per share, implying a 20% rally from the stock's current level. "Disney is succeeding in the land grab phase of Direct-To-Consumer (DTC) and has the most clear path to successfully transitioning its general entertainment programming and content production businesses into a globally scaled, vertically integrated streaming entertainment leader," Deutsche Bank research analyst Bryan Kraft told clients. Shares of Disney fell slightly in Tuesday's premarket. They are down more than 8% in 2020 as the coronavirus pandemic forced the theme park operator to shut its parks, its biggest profit driver . Disney also faced movie theater closures, film and TV production shutdowns, docked cruise ships and the suspension of most live sporting events amid the Covid-19 shutdowns. A bright spot for Disney has been its streaming service, Disney+, which launched in November as a competitor to Netflix, Hulu and Amazon Prime Video. The service boasted more than 60.5 million subscribers as of last month, hitting its goal of 60 million to 90 million subscriptions by 2024, four years early. Deutsche Bank said Disney will continue to have opportunities to monetize its large subscriber base through higher pricing and leveraging the Disney+ base for the media giant's new movie releases. "Including new releases in the Disney+ subscription might not be optimal, but we believe it will actually become feasible. Disney could even offer a 'new release' tier on Disney+ that gives subscribers access to all new releases for a premium price," said Kraft. In Disney's first effort to sell content on Disney+, on top of the monthly $6.99 subscription, Disney+ subscribers are able to watch its much-anticipated live action film "Mulan" on the platform for $29.99 in the U.S., beginning last week. Kraft also said Disney's upcoming analyst day will be a catalyst for the stock, with management discussing subscriber targets, profitability, and updates on Hulu and ESPN. The date of the analyst day has not yet been announced. "We think investors and analysts will walk away from the analyst day focused on analyzing the upside scenarios and 'just how big this could be for Disney', resulting in positive longer term estimate revisions for streaming," said Kraft. The firm's new $163 per share price target implies the stock should trade at 24x futures earnings. "We believe investors will be creative in justifying a higher stock price as they become increasingly constructive toward an acceleration in the business model shift, a common theme in this market," Kraft said. — with reporting from CNBC's Michael Bloom.

Attendees visit the Disney+ streaming service booth at the D23 Expo on August 23, 2019 at the Anaheim Convention Center in Anaheim, California.

ROBYN BECK | AFP | Getty Images

(This story is for CNBC Pro subscribers only.)

Deutsche Bank is getting behind Disney, betting its streaming service will allow the media giant to leverage and monetize its massive and growing subscriber base.