Goldman Sachs’ (NYSE:GS) has reinstated its coverage of Walt Disney Co. (NYSE:DIS) with a Buy rating on the heels of its $65-B cash acquisition of Fox assets.
The 142/share Goldman Sachs price target is more than 10% higher than the 127.50 consensus analyst target, and it represents an implied upside of 26% from the $112.52 closing price ahead of the analyst call.
Disney also has that 1.6% dividend yield for total return investors. Disney’s stock has been a significant under-performer in Y 2019, with the DJIA and S&P 500 posted double-digits and Disney shares up less than 3% year-to-date.
The analyst’s Key focus of the call is the recently completed Fox acquisition. The deal is being viewed as a positive long-term strategy for Disney and its direct-to-consumer pipeline.
The report said the following:
It is the dawn of a new era at Disney. The $70-B acquisition of Fox is now closed and the approaching debut of Disney+ streaming service in late calendar year 2019 marks a momentous shift in the company’s content monetization model from third-party licensing to direct-to-consumer streaming.
Goldman Sachs also sees the Fox acquisition bringing economies of scale and stronger bargaining power with distributors. There is also content diversification with Fox’s adult programming and an increased international reach for broader distribution.
As far as cost synergies, that estimate is being put at about $2-B by the 2nd year’s completion. That is about 11% of expected pro forma operating income for Y 2019.
This upgrade is also after “Avengers: Endgame,” due to be released on 26 April, has broken the record held by “Star Wars: The Force Awakens” in pre-sales. In fact, the movie pre-sales have been reported to have broken that record in six hours versus the full 24-hours for the Star Wars film.
Disney share finished at $114.75 Thursday, in a 52-wk range of 97.68 – 120.20.
Note: most DJIA and S&P 500 stocks getting Buy and Outperform ratings come with an implied 8% to 10% total return to the price target at this stage of the Bull market. This call on Disney is almost 3X that, and it is after Disney leveraged up for the Fox acquisition.
This is not the only Bullish post-merger analyst call on Disney, nor is it the most Bullish of all analysts, despite being more than 10% higher than the consensus price target. Disney is expected to have 15-M subscribers to it streaming service by Y 2021 and growing to a combined 190-M subscribers for all of its streaming services by 2023.
Have a terrific weekend