2017 Will Be A 'Reset Year' For Disney

Alan Gould of Rosenblatt Securities initiated coverage of Walt Disney Co DIS with a Neutral rating and $120 price target, calling 2017 a "reset year" for the company.

According to Gould, Disney's earnings managed to grow at a 15 percent compounded annual growth rate since Bob Iger took over as CEO in 2005. However, 2017 will see just "modest growth" due to ESPN's well-documented woes and expectations for earnings from Disney's films to be lower this year versus 2016's record. Also, the company's theme park margins are at historic highs and it is unclear if this will continue moving forward.

On the other hand, Gould did, however, note that Disney's upcoming movie slate is the strongest it has been in years and the parks segment benefits from year-over-year comparisons after last year's higher opening costs for the park in Shanghai.

Taking all of these factors into consideration, Gould is projecting Disney's earnings growth in 2017 to be just a high-single digit.

Beyond 2017

Looking beyond 2017, Gould believes it is "critical" for Disney to develop a direct-to-consumer relationship. Specifically, ESPN needs to implement a full OTT (over-the-top) system, which can be delivered directly to consumers 5–10 years from now.

Also, Disney's film profits in 2018 are expected to reach $2.9 billion, marking an improvement from 2016's record of $2.7 billion and the estimated $2.3 billion in 2017.

Finally, the analyst addressed one of the major concerns facing Disney's shareholders: the eventual retirement of Iger, which has been postponed through 2019. Investors shouldn't be worried, as Disney boasts a strong management team and it is assumed the next leader will be a "creative or digital person" or the company can also look outside and hire a "strong digital executive."

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