The Stock Of Disney Is Slumping, But One Analyst Sees A Silver Lining

Disney is facing a challenging period characterized by theatrical difficulties, layoffs at ESPN, and soft attendance at theme parks. Rosenblatt Securities analyst Barton Crockett expressed his concerns in a note to clients, leading him to lower his price target on Disney's stock. Despite this, Crockett maintained a positive outlook and reiterated his buy rating, highlighting the significant asset value of Disney and its potential for realization.

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Crockett believes that Disney can overcome its current challenges and is not overly troubled by reports of lower attendance at Disney's Orlando parks. He noted that the company had already warned about tough year-over-year comparisons due to promotions associated with Walt Disney World's 50th anniversary. Additionally, Crockett finds encouragement in his sum-of-the-parts analysis, which suggests a positive outlook for the shares. In the event that Disney cannot swiftly turn things around, he sees breakup scenarios as a hedge for investors. These scenarios include a potential spinoff of the parks business or TV networks, with interested buyers possibly valuing the networks at a low multiple for cash flow generation. Alternatively, Disney could consider parting ways with ESPN alone.

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Crockett also acknowledged the value that potential suitors would see in Disney's content engine and streaming enterprise. He proposed that these segments could trade separately as a valuable content library with a streaming service attached, attracting interested buyers similar to Lions Gate's split/sale process. Another possibility is selling the content library to a tech giant seeking iconic content, such as Apple.

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Crockett emphasized that unlike other media companies with dual-class share structures, Disney's responsive nature to shareholder desires could facilitate a potential breakup if shareholders express such interests.

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Laura Martin from Needham took a less optimistic stance, rating the shares as hold. However, she also recognized Disney's shareholder setup as compelling and suggested that the company's lack of a controlling shareholder could make it an attractive acquisition target within the next three years. Historically, media companies with exceptional content libraries have commanded takeover premiums of 30-40% above the public trading price, and Disney, possessing the best assets in the media business, aligns with this pattern. Additionally, the absence of a permanent CEO or CFO with conflicting agendas further enhances Disney's appeal to potential buyers.

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