Disney In 2017: More Beauty Than Beast

Vijay Jayant of Evercore ISI upgraded shares of Walt Disney Co DIS on Tuesday from Hold to Buy, with a price target boosted to $120 from a previous $103.

In addition to an upgrade, Jayant stated in his note that he is now considering naming Disney a top pick for 2017, largely due to a macro call. The analyst argued that Disney is well positioned to benefit from many tailwinds, including:

• A pro-inflation business model (advertising, theme parks and resorts)
• A mostly domestic model
• The fact the company is a full taxpayer
• Low leverage
• Relatively high capital expenditure levels

Jayant also argued there has been a recent shift in investor sentiment and investors are now looking beyond the current fiscal year, which may be hurt by the "well-understood" ongoing woes at ESPN, a difficult performance and Studio and challenging growth comparisons at the Consumer Products segment.

"We think current valuation fully reflects the short term growth challenges, but we believe there is potential upside from a host of tactical factors during a year that has been telegraphed as one with a dearth of positive catalysts," Javant wrote. "A higher terminal value multiple seems warranted given the company's deep pipeline of ‘evergreen' intellectual property."

Bottom line, Disney could show a "tepid" 5 percent earnings per share growth in fiscal 2017, but a low debt leverage and full taxpayer status could make new tax reforms 10 percent accretive to the company's calendar 2017 estimates.