Drexel Downgrades Disney On NBA Concerns, Prefers Time Warner Instead

Walt Disney Co DIS and Time Warner Inc TWX are already feeling lots of heat from cord-cutting competitors like Netflix, Inc. NFLX. However, Drexel Hamilton analyst Tony Wible believes the two traditional TV giants will also soon be dealing with major costs associated with NBA renewals.

Live sports is one of the few remaining advantages cable TV has over Netflix and other online streaming options. However, those sports deals don’t come cheap. Wible believes the cost of Time Warner and Disney’s NBA deals could be much higher than the market is anticipating. In fact, he estimates that the cost of the deals could jump 120 percent year-over-year.

“We're downgrading DIS to Hold as this risk is amplified by incremental sub loss concerns, Shanghai losses, and difficult studio comps,” Wible explains.

Related Link: Disney Trading At Lowest Valuation Since 2009

He notes that Disney could see its NBA renewal price increase by between $690 and $740 million. For Time Warner, Drexel Hamilton estimates a $280 to $430 million NBA price hike.

While the firm has downgraded Disney’s stock from Buy to Hold, the firm maintains its Buy rating on Time Warner. Wible believes Time Warner is better-positioned to offset the rising costs via VMVPD bundles and direct OTT sales.