The Mouse And Murdoch's House: Morgan Stanley Bullish On Post-Deal Landscape For Fox, Disney

As The Walt Disney Co DIS prepares to close its acquisition of much of Twenty-First Century Fox, Inc FOXA’s entertainment assets, the post-deal landscape looks promising for both the new, bigger Disney and the new, smaller Fox, according to Morgan Stanley.

The Analyst

Morgan Stanley analyst Benjamin Swinburne reiterated Overweight ratings on Disney ($135 price target) and 21st Century Fox ($56 price target).  

Leaner Fox Has High Growth Potential

While the assets Fox is selling to Disney, like the TV company that produces "The Simpsons" and the film companies that produced "X-Men" and "Deadpool" may be best known to many consumers, the news and other TV networks that will remain in New Fox look good, Swinburne said in a Thursday note. 

Fox’s recent Form 10 SEC filing confirm Swinburne's thesis that Fox’s remaining TV network properties are likely to drive faster distribution revenue growth than the assets it is selling to Disney, the analyst said. 

“Our underlying thesis is unchanged: Fox News and Fox Network distribution fees drive industry-leading growth,” Swinburne said.

Morgan Stanley sees the potential for high incremental margin top-line growth leading to double-digit earnings growth for New Fox.

“While New Fox is essentially a portfolio of U.S. linear TV networks, we see growth characteristics that are meaningfully stronger than other publicly traded TV network peers." 

A Big Year For Disney 

The impending closing of the Fox acquisition isn’t the only major item on Disney’s calendar, Swinburne said in a separate note.

The launch of Disney’s streaming service Disney Plus in the fall and the opening of a Star Wars Land theme park in Orlando, among other events, will make 2019 “transformational” for the company, the analyst said.

Big new investments in content, theme parks and acquired businesses may weigh on near-term earnings, he said, but should bring future long-term growth.

“With DIS shares essentially flat since mid-2015 … a successful 2019 can re-establish Disney as a growth company for the future." 

Swinburne pointed to the prospect of core distribution revenue growth at sports network ESPN and other cable networks and also said Disney will continue to see margin expansion at its theme parks.

Disney shares were trading up 0.44 percent at $111.04 at the time of publication Friday, while Fox was up 0.17-percent higher at $48.99. 

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