Disney Named RBC Capital's Top Pick

Walt Disney Co DIS is one of Wall Street's most hotly contested stocks given its exposure to cable TV through its ESPN unit. But there is no debate among analysts at RBC Capital Markets who named the stock on Monday a "Top Pick." The firm's Steven Cahall upgraded Disney's stock rating from Outperform to Top Pick but with a price target lowered from $130 to $125.

Disney has recently reached a "turning point" whereby its ESPN unit accounts for less than 20 percent of total earnings, Cahall said. But at the same time, the company's media segment strategy is now focusing on direct-to-consumer initiatives and affiliate renewals. Also, the non-media segment remains a "global leader" that is executing well.

In fact, Disney's non-media segment will soon "take over the story" and implies Disney will become the "least media stock in the media sector," the analyst said.

Even when moving forward with the assumption of ongoing woes from ESPN, the rest of the Disney empire will continue to perform well, which will result in investors re-rating the stock higher, Cahall continued. This "new narrative" will be one that is embraced by investors who should consider the company being "one of the clearest pictures for the longer-term."

Nevertheless, the analyst's earnings per share revision needs to come down to reflect dilution from the DTC initiatives, multiple expenses and less of a contribution from EPS. However, in no way would this justify a downgrade — quite the contrary, the company's "unknown unknowns" now have better visibility and marks an "important reset" period.

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Image Credit: By Ben Liebenberg, CC BY-SA 3.0, via Wikimedia Commons