Skip to Content
Stock Analyst Update

An Attractive Entry Point for Wide-Moat Disney

While media networks continue to suffer due to weaker-than-expected advertising revenue and subscriber losses, the parks business expanded with Shanghai driving growth.


 Disney (DIS) reported a mixed second quarter of fiscal 2017, as the top line came in below our expectations but EBITDA was above our projection. While media networks continue to suffer due to weaker-than-expected advertising revenue and subscriber losses, the parks business expanded with Shanghai driving growth. The increase in expenses was lower than we projected despite the expected large jump in NBA rights costs. We are maintaining our wide moat rating and our $134 fair value estimate. With shares trading in four-star range, the stock may offer an attractive entry point for investors.

Revenue improved 3% over last year to $13.3 billion, slightly below our estimate of $13.6 billion, as growth at media networks and parks and resorts more than offset the declines at the other two segments. Affiliate fee growth remains strong at 4% year over year despite slowing growth in pay television subscribers which was up 0.5% sequentially. While worrisome, we think that the inclusion of Disney channels in every OTT pay service that has launched demonstrates the strength of the firm’s overall channel package. EBITDA margin fell by 125 basis points due to higher content costs including the NBA but still came in ahead of our more conservative estimate.

The improvement at park and resorts was driven by the Shanghai resort and improved costs controls which offset inflation and wage increases. Shanghai is expect to reach 10 million visitors by this weekend, ahead of management's previous projection that it would occur around the one-year anniversary this June. Studio revenue was down 1% on a slightly weaker slate, which we expect for all of fiscal 2017. Revenue at consumer products fell 11% due to tough comps with high sales of Star Wars and Frozen last year. Overall EBITDA improved 12% to $4.4 billion, above our estimate, as the 1% decline at media networks was more than offset over 19% improvements at both the studio and parks and resorts segments.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.