Is The Market Overlooking This Huge Disney Catalyst?

While much of the world is looking toward the December release of the latest “Star Wars” movie as the next big catalyst for The Walt Disney Co DIS’s stock, Topeka Capital Markets analyst David Miller sees the next big catalyst for Disney coming all the way across the Pacific Ocean from Hollywood. Shanghai Disneyland (SDL) is scheduled for a Spring 2016 opening, and, after crunching the projected numbers, Miller believes that the new park makes Disney’s stock a Buy.

Demographics
Miller believes that the location of SDL will be key to the park’s success. The Pudong district of Shanghai will be home to the new park, a region that Miller refers to as “the wealthiest of all the districts” in Shanghai. A whopping 330 million people live within a three-hour drive of the new park, compared to only 24.1 million and 19.6 million people who live within the same distance of Disney’s U.S. parks in Anaheim and Orlando, respectively.

Value added
Topeka believes SDL will drive Disney’s 2016 earnings significantly higher than consensus estimates. The firm is projecting fiscal 2016 earnings per share of $6.88 versus consensus estimates of only $6.34 per share. “Attaching a 20.0x multiple…now implies a target of $137.60, which we are rounding to $138,” Miller explains.

Topeka feels so strongly about the potential impact of the new part that the firm upgraded the stock from Hold to Buy based on their most recent projections.

What to expect from Q2 earnings
Topeka is calling for a Q2 earnings beat for Disney this week, projecting $1.43 per share on revenue of $13.245 billion. Both numbers are ahead of Wall Street’s consensus estimates of $1.39 and $13.169 billion.

Although Disney’s stock has traded down on the day following four of its last five earnings reports, its last beat in February of this year was a big one and produced a 7.6 percent spike in share price the following day.