Disney gets analysts thumbs-up for rebound
By Meredith Amdur
12/29/02 18:58 ET
NEW YORK (Variety) -- Disney got a goodwill treat from an unlikely source last week, when Salomon Smith Barney rewarded the company's renewed focus and cost-cutting efforts with a ringing strategic endorsement while predicting a operating profit swing of as much as $4 billion.
In a 60-page report, "Poised for a Rebound," Salomon suggests that with turnarounds brewing in several business segments, the Mouse should outperform the market by the latter half of 2003, thanks in part to its depressed starting point. Salomon slapped a price target of $25 on Mouse shares, which still limp along at around $16.
Such clear corporate validations are increasingly rare among today's more jaded equity research analysts.
With a "rich and risk-averse" film pipeline, signs of pending upturn in theme parks and consumer products and a stage set for a multiyear turnaround at ABC, Salomon analysts expect Disney to be throwing off more free cash as the economy recovers and the heavy costs of its sports-rights spending binge yield dividends from ESPN's 20% annual fee increase guarantees.
Salomon analysts Jill Krutick and Margaret Blaydes (both of whom, it should be noted, certify the independence of their views and that they don't stand to gain from their bullishness on the stock) believe long-suffering Disney shareholders will ultimately be rewarded for their patience. They point to ABC's second-place finish in the November sweeps and a recovering ad market as well as travel agent surveys and Orlando hotel data that point to improvement at the make-or-break parks biz. Salomon expects a 12% uptick in per capita spending growth at parks next year.
Corporate governance remains a top priority for the company, says Salomon, but the bank is encouraged by recent changes to enhance board effectiveness through greater independence and fewer members. The bank seems more or less convinced that Disney can meet its own earnings per share target growth of 25%-35% for 2003, though heavy programming and sports spending will dampen growth prospects for the first half of next year.
Risks remain, nonetheless, including the fragility of the ad cycle, ABC's uncertain ability to revive its competitive fortunes and the impact of a war. The bank also hedges itself slightly with the inherent volatility of filmed entertainment, which can skew results from quarter to quarter. Lack of a clear succession plan for senior management could also hinder share growth.
By Meredith Amdur
12/29/02 18:58 ET
NEW YORK (Variety) -- Disney got a goodwill treat from an unlikely source last week, when Salomon Smith Barney rewarded the company's renewed focus and cost-cutting efforts with a ringing strategic endorsement while predicting a operating profit swing of as much as $4 billion.
In a 60-page report, "Poised for a Rebound," Salomon suggests that with turnarounds brewing in several business segments, the Mouse should outperform the market by the latter half of 2003, thanks in part to its depressed starting point. Salomon slapped a price target of $25 on Mouse shares, which still limp along at around $16.
Such clear corporate validations are increasingly rare among today's more jaded equity research analysts.
With a "rich and risk-averse" film pipeline, signs of pending upturn in theme parks and consumer products and a stage set for a multiyear turnaround at ABC, Salomon analysts expect Disney to be throwing off more free cash as the economy recovers and the heavy costs of its sports-rights spending binge yield dividends from ESPN's 20% annual fee increase guarantees.
Salomon analysts Jill Krutick and Margaret Blaydes (both of whom, it should be noted, certify the independence of their views and that they don't stand to gain from their bullishness on the stock) believe long-suffering Disney shareholders will ultimately be rewarded for their patience. They point to ABC's second-place finish in the November sweeps and a recovering ad market as well as travel agent surveys and Orlando hotel data that point to improvement at the make-or-break parks biz. Salomon expects a 12% uptick in per capita spending growth at parks next year.
Corporate governance remains a top priority for the company, says Salomon, but the bank is encouraged by recent changes to enhance board effectiveness through greater independence and fewer members. The bank seems more or less convinced that Disney can meet its own earnings per share target growth of 25%-35% for 2003, though heavy programming and sports spending will dampen growth prospects for the first half of next year.
Risks remain, nonetheless, including the fragility of the ad cycle, ABC's uncertain ability to revive its competitive fortunes and the impact of a war. The bank also hedges itself slightly with the inherent volatility of filmed entertainment, which can skew results from quarter to quarter. Lack of a clear succession plan for senior management could also hinder share growth.
