Analyst Sees Disney Reshaping Its Portfolio

“We think Bob Iger is returning to Disney to make big changes. Spinning [off] ESPN/ABC is the best path forward, and we see it as a reasonably probable late-’23 event.” Wells Fargo analyst Steven Cahall opened a Tuesday report on The Walt Disney Co., led again by Iger as CEO, with a big call that is certain to cause debate.

According to The Hollywood Reporter the analyst, who has an “overweight” rating with a $125 price target on Disney, making it a “signature pick” of his firm, argued that it was “time for change.” Disney stock was trading at 86.14 a share Tuesday, down 45 percent year-to-date.

In the near term, Cahall expects Iger and his team to focus on content and cost rationalization. “However, over the longer term, we expect a deeper think on portfolio reshaping. Recall that Iger built Disney into what it is today: a franchise IP leader with global scale. ESPN, traditionally the cash cow, is neither owned-IP nor global the way the rest of Disney is. With linear and sports trends diverging from core IP, we think severing the company is increasingly logical.”

Separating ESPN and ABC “would leave remaining Disney as an attractive pureplay IP company,” the Wells Fargo expert emphasized. “We also think investors are increasingly put off by trying to determine how fast linear networks — most of which is ESPN/ABC — is declining as direct-to-consumer (DTC) profits improve. The seesaw creates a constant headache. Spinning ESPN/ABC provides price discovery for the asset at a Fox-esque multiple of 6-7 times enterprise value/earnings before interest, taxes, depreciation and amortization (EBITDA), and then lets remaining Disney be more of a pureplay on global IP and streaming.”