Why The Disney Story Is Already All About 2018

It’s only mid-January, but Loop Capital is already looking ahead to 2018 when it comes to Walt Disney Co DIS. According to analyst David Miller, 2017 will be a transition year for Disney, but the company should bounce back to solid growth numbers in 2018.

Transition Year Followed By A Year Of Growth

“With DIS citing F2017 as a ‘transition year’ due to pension expenses, as well as tough comps at both Studio and Consumer Products due to last year’s Star Wars event, we continue to abandon valuing DIS off F2017 and move to F2018 as the more appropriate FY, as that will be the year that the mid/high teens earnings growth which DIS shareholders have enjoyed the past 10 years will likely re-emerge,” Miller explained.

Miller isn’t concerned with the relatively weak performance of “Rogue One” in China, and Loop has not adjusted its Q4 studio-specific revenue or EBIT projections.

Disney currently has a net debt ratio of only 0.78x compared to an average ratio of 2.36x among Disney’s peers. Some shareholders have been calling for Disney to increase its leverage in-line with its large-cap media peers and use the proceeds for share buybacks. Miller believes it is unlikely management will take this approach. Disney prioritizes its “A” credit ratings and the company prefers to use free cash flow for buybacks rather than debt.

Loop Capital maintains a Buy rating on Disney and has raised its price target from $113 to $117.