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Disney earnings: It’s a transition period for the media and entertainment company

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Walt Disney Co. has needed an answer for ESPN for some time.

The company laid out plans last quarter to launch a direct-to-consumer streaming service from ESPN in hopes of combating the damage suffered from cord-cutting.

Analysts have argued whether the move is too late, and whether it will be enough to curtail the network’s subscriber exodus, but RBC Capital Markets analyst Steven Cahall said Disney DIS, +0.96% is transitioning the company to be better positioned for the future.

“We now consider Disney the best positioned stock in the media sector,” Cahall wrote in a note to investors in October. “Its strategy for the next five years is clear with the push to direct-to-consumer plus favorable affiliate renewals in media, continued investment for growth in the parks and a fantastic slate to drive studio and consumer product earnings.

“We see this new narrative taking over and while there is certainly still risks to forward estimates we now consider Disney one of the clearest pictures for the longer-term.”

Cahall said he expects Disney’s earnings contributions from ESPN to be less than 20% by 2020. He said many investors believe ESPN is between 40% and 50% of Disney’s earnings.

As ESPN continues to suffer from subscribers ditching the network and traditional cable offerings, the company is also reportedly facing more staffing cuts while struggling to make its way through a politically charged environment where social-justice issues are being highlighted.

Outside of ESPN, Disney’s ABC-TV Group recently said it plans to lay off as many as 200 people.

Cahall, however, sees Disney’s intellectual property at its TV and film studios playing a bigger role, driving Disney’s earnings along with the theme parks division and the future Disney streaming service.

Investors might have to wait a few years to truly measure the success of Disney’s strategy going forward, Cahall said. Meanwhile, Disney will all need to shift focus to transitioning away from Chief Executive Bob Iger.

Iger said at a conference in October that he plans to step down in 2019. The Disney chief has had his tenure extended by the board at least twice as the company has struggled to secure a successful succession plan.

Walt Disney Co. is expected to report fiscal fourth-quarter earnings after the market closes on Nov. 9. Here’s what investors can expect:

Earnings: Disney is expected to report earnings of $1.15 per share, according to analysts tracked by FactSet. That would be an increase of 5.5% compared with same period a year ago, but a 26.6% decline from the media and entertainment company’s most recent fiscal third quarter. Disney has surpassed FactSet’s per-share earnings expectations in eight of the last 10 quarter.

Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, expects Disney to report earnings of $1.17 per share.

Revenue: Analysts expect Disney to report revenue of $13.31 billion, according to FactSet. That would be an increase of just 1.5% compared with the year-earlier period, but a decline of 6.3% compared with the third-quarter revenue. Disney has missed FactSet forecast on revenue in seven of the last 10 quarters. Estimize contributors on average expect revenue to come in at $13.20 billion.

Disney’s media networks, which include cable and broadcast properties, are expected to bring in $5.69 billion, with the majority of that coming from cable networks. Disney’s theme parks and resorts are expected to contribute $4.60 billion, while its film division is expected to add $1.58 billion and consumer products $1.38 billion.

Share price: Disney shares are down 5% in the year to date. By comparison, the S&P 500 index is up close to 16% and the Dow Jones Industrial Average, which counts Disney as a component, is up more than 19%.

Analysts tracking the stock have an average 12-month price target of $110.93, according to FactSet, which represents roughly a 11.5% premium to current trading levels. Analysts on average rate the stock at overweight, which is the equivalent to a buy rating.


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