The strong performance of Disney's (DIS) - Get Report first Star Wars spin-off over the weekend was helping propel its stock on Monday as Bank of America/Merrill Lynch added Disney to its "US 1 list" of best investment picks.
Shares of Disney were rising 1.6% to $105.61 Monday morning as Rogue One: A Star Wars Story, opened with a record-smashing $155 million. The first film to veer from the Skywalker storyline had the second-best opening in the month of December, only trailing behind last year's Star Wars: The Force Awakens, which debuted at about $247 million, according to boxofficemojo.com.
It was enough for Bank of America/Merrill Lynch to add Disney to its list of most highly recommended stocks. The firm said Disney shares are poised for outperformance heading into 2017 and early 2018, buoyed by blockbuster-level film releases and strength at international/U.S. parks and resorts, as well as increased exposure to launches of new over-the-top programming services (virtual multichannel video programming distributors, or MVPDs, in industry jargon) and new direct-to-consumer platforms.
With concerns about ESPN subscriber numbers and near-term comparison concerns likely to now be in the rear-view mirror, the drivers of Disney's growth are "increasingly visible," the firm said.
"Although DIS sentiment has been pressured on ESPN and near term comp concerns, with the FY17E bar now lower (and the NBA [contract] step-up/ Star Wars comp overhangs nearly behind), we believe DIS offers an increasingly solid catalyst pipeline for upside potential in FY17/FY18E," the firm noted.
Disney dominates the media and entertainment industries with its global branded family entertainment offerings, and its slate of upcoming releases is does not look to disappoint, Bank of America added.
Key releases include Rogue One, Beauty and the Beast, Guardians of the Galaxy 2, Pirates of the Caribbean: Dead Men Tell No Tales, Cars 3 and several other films across its Disney, Marvel, Pixar and Lucasfilm studio labels.
Additional catalysts will be the opening of Avatar Land at Walt Disney World, growth at Shanghai Disney, Disneyland Paris' 25th Anniversary Celebration and the opening of the Iron Man Experience at Hong Kong Disneyland.
Disney will also continue to benefit strongly from the proliferation of virtual MVPD and direct-to-consumer platforms, such as AT&T's (T) - Get Report recently-launched DirecTV Now, Dish Networks' (DISH) - Get Report Sling TV, Sony's (SNY) - Get Report PlayStation Vue and a potential launch of Hulu Live in early 2017, Bank of America added. ABC, ESPN and Disney Channel programming are all available on DirecTV Now, PlayStation Vue and Sling TV.
In addition, the upside from Disney's parks and studios bodes well for possible further capital returns or accretive M&A, the firm noted.