A well-known investment bank upgraded Disney stock to a “Top Pick” designation, based in part on ESPN’s lessening influence on the company’s financials. RBC Capital Markets called Disney “the best positioned stock in the Media market” based on the promise of non-media assets like the studio and theme parks. “Somewhat ironically, its story is also now the least Media of the Media stocks,” says a report that was released early this morning. The report was bearish on the cable bundle overall, predicting that subscriber losses would accelerate and calling it “a fool’s errand to try to convince investors that ESPN is not in a troubled place.”
Based on Disney’s precedent-setting Altice deal, RBC concluded that cable affiliate revenue will grow at the same rate as ESPN’s sports rights payouts. But it said that ESPN’s growth prospects were limited. While the rest of Disney grows, ESPN will become less important to the company’s earnings, RBC said. The report suggested that Disney held an option to spin or sell ESPN if it “hamstrings the valuation,” the report said. “Subscriber declines aren't going to vanish, but we view the risks as manageable especially as we think ESPN will soon be <20% of company earnings.”
