FBR's Checks Into Star Wars Suggest Possible 35% EPS Upside For Disney By FY17

• Shares of Walt Disney Co. DIS are up 20 percent year-to-date, and touched the $120 mark on November 20.
• FBR & Co’s Barton Crockett maintained an Outperform rating on the company, with a price target of $126.
• Checks indicate robust box office performance of Star Wars: Force Awakens and its sequel Rogue One, Crocket mentioned.

Walt Disney’s Star Wars: Force Awakens is expected to have domestic box office collection of $730 million, just behind Avatar’s all-time record of $761 million.

“We see current tracking for a Star Wars: Force Awakens de-risking downside, and making a plausible argument for 35% upside potential in Disney EPS by FY17,” analyst Barton Crockett said.

The December 2016 assumptions for sequel Rogue One could rise to match Force Awakens, driving a potential $1B–$2B lift to the profit assumptions by FBR and Street consensus.

“Big December movies typically earn nearly 5x opening weekend in total domestic box, suggesting Force could fetch nearly $1B in domestic box over its total run,” Crockett wrote.

The analyst expects Walt Disney’s 2016 performance to improve, given an expected increase in the company’s fees from licensed merchandise, driven by increased promotions after Labor Day, and robust domestic box collections for Force Rogue.

Crockett believes that Walt Disney is poised to benefit from potential additional lifts in later years from the Shanghai Park launch, Frozen sequel, new Avatar and Star Wars attractions in theme parks, and potential new SVOD launches.

Concerns surrounding two-month old ESPN sub numbers in the latest 10-K seem to be overdone, the analyst added.