Mighty Mouse: Disney's Streaming Strength, Theme Park Spending, Box Office Hopes Make Street Bullish

Wall Street analysts were bullish on The House Of Mouse following a strong earnings print from Walt Disney Co. DIS, expectations for a big year for Disney superheroes at the box office and a bright future in streaming.

Disney turned out a strong first-quarter earnings beat Tuesday on sales that beat Street expectations, with better-than-expected revenue in its cable TV network division and robust spending at its theme parks.

The expectations for a blockbuster year ahead at the movie theaters, along with a pending merger with 21st Century Fox FOXA and a shifting focus into what many see as the future of home entertainment – streaming services – had Wall Street watchers excited not just about the recent quarter, but all of 2019, with one gushing, “This will be Disney’s year!”

Streaming Along

With Disney having made it clear its future in terms of TV is in the streaming model, rather than traditional cable, analysts took particular notice of the strong performance in the company's early foray into direct-to-consumer with the sports streaming service ESPN Plus. Morgan Stanley’s Benjamin Swinburne was surprised by its impressive takeoff.

"Having already crossed 2 million paid subscriptions, leveraging both the ESPN brand, the linear networks' promotional support, and exclusive programming including the UFC and (Italian soccer league) Serie A, ESPN Plus is a reminder of the latent demand in the market for streaming content," Swinburne wrote in a note.

UBS Global Research analyst John Hodulik also took note of the quick subscription response to the new sports streaming service, and said success may portend strong overall subscription numbers when the company gets its Disney Plus subscription streaming service up and running.

"Early signs of success give us increased confidence in our estimate for 5 million Disney Plus subscribers in the first year and potential upside from lower than expected advertising cost," Hodulik said.

Tigress Financial’s Ivan Feinseth said Disney will have an advantage over the incumbent big player in streaming, Netflix, Inc. NFLX, because Disney is steeped in experience in creating content that viewers want to watch. That strength will boost Disney, he said in his email newsletter, and in a CNBC television appearance Feinseth elaborated on that competitive advantage.

"Disney will out-Netflix Netflix in the direct-to-consumer model," Feinseth said on CNBC. "Because of content. Content is king, and they are the king of content."

Analysts also noted a recent ongoing drop in cable subscriptions that has had ESPN worried seems to have eased some, based on the strength of sales at the TV network division in the December quarter, though the company didn't release specific subscription numbers. Any worries about the traditional ESPN delivery model seemed to be overshadowed by excitement about how quickly the company has been able to ramp up the sports streaming model.

Box Office Strength

Feinseth also noted 2019 should be a big year at the box office for Disney, which he predicted will have more than 10 strong movies, including three -- "Captain Marvel" "Avengers: Endgame" and "Star Wars IX" -- that could reap $2 billion each from moviegoers.

Swinburne maintains an Overweight rating on Disney with a $135 price target.

Hodulik rates Disney a Buy with a $128 price target.

Feinseth continues to have the entertainment giant rated a Buy.

Disney's stock traded at $111.85 per share Wednesday afternoon.

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