Magic Returns for Disney Watchers

Dizzy? Magical 2003 for the stock

Among analysts, the business with the greatest divergence in outlook is the broadcasting portion of the company's media networks division. The ABC TV network started the fall season out strong, but has been weakening subsequently, say analysts. Wang, for example, recently trimmed his broadcasting revenue estimate for the quarter to $1.21 billion, up 5% from last year, citing slower-than-expected revenue growth at ABC. He cut his bottom-line estimate to a $60 million loss, citing higher-than-forecast programming costs -- due in part to an increasing number of Monday Night Football broadcasts in the quarter.

But while Wang and SoundView Technology analyst Jordan Rohan were trimming estimates for Disney's broadcast division, Oppenheimer's Peter Mirsky was raising them; in a recent report, he said he was predicting the broadcast unit would almost break even in the fourth fiscal quarter.

Cartoonish

Another area of uncertainty: Disney's relationship with Pixar (PIXR Quote), the creator of Finding Nemo, Toy Story and other animated hits. Disney's deal to distribute Pixar's films doesn't expire until 2005, but analysts can't stop thinking ahead to what might happen to Disney should Pixar jump to another studio.

Analysts also wonder whether the expected continued improvement in Disney's performance in fiscal 2004 is already reflected in the stock price. With Disney trading at a roughly 11% premium to its peers on the basis of enterprise value divided estimated 2004 EBITDA, says Wang, "we believe the market has already discounted much of the expected earnings recovery in FY04." Wang has a neutral rating on the stock; his firm has done investment banking and underwriting for Disney within the past 12 months.

Meanwhile, SoundView's Rohan has an outperform rating on the stock. "Valuation is attractive as momentum builds at key business units," he writes. Rohan's firm hasn't done banking for Disney.

For the record, the Thomson First Call consensus is for Disney to report $6.99 billion in revenue for the quarter, up from $6.66 billion in the corresponding quarter a year earlier. Analysts expect earnings per share of 15 cents, up from 11 cents one year earlier.