The Walt Disney Company: We Put Their Magic to the Test -- RBC Capital Markets

Key points Parks gutcheck around Pandora openingDIS hosted investors at Walt Disney World in Orlando under the auspices of this week39s opening of Pandora the world of Avatar More broadly the visit was a gutcheck on the Parks ampamp Resorts business with PampampR representing around 25 of our FY17EFY18E OI with yy OI growth of 2015 respectively The operation continues to impress and we see it as both unique globally and a source of DIS39s earnings powerParks expansions to continuePandora is designed as an immersive experience anchored by two main ride attractions which are awesome with the curated world spread over 10 acres Along with Animal Kingdom the attraction is intended to draw nighttime traffic as well as day which should help drive both attendance and more importantly per cap spend aka yield via longer visits We expect major future capex such as Toy Story Land expected open 2018 and two Star Wars Lands 2019 to have similar business characteristics 1214 acre builds 23 anchor attractions immersive experiences day and night attractions dedicated retailFampampBConfidence at the topCEO Bob Iger provided commentary around PampampR including that Shanghai just hit its target of reaching 10mm guests in its first year around a month early Investments continue at Shanghai Hong Kong and Tokyo while Paris is due for a facelift On the domestic side the aforementioned expansions continue with margin expansion supporting management39s strategy As evidence we think both PampampR segment and domestic PampampR incremental margins have been tracking ampgt30 since FY14 and our estimates have this continuing Parks ampamp Resorts Chairman Bob Chapek also provided detail on the business and some investors think he could be in the succession running as he39s perhaps the only DIS senior exec to have run multiple segments he formerly ran CP and would have chops in both creative and operational disciplinesLeast Media Best MediaDIS remains our top Outperform idea in Media and we remain confident in our nearly streethigh estimates for both FY18E EPS 700 and FY18E PampampR OI 4554mm We like DIS relative to peers because while we believe cord cutting is likely accelerating DIS39s sub loss sensitivity is well below the peer group given offsets outside of Media including strong PampampR ops the Studio and the capacity for significant share buybacksValuationWe value Disney on a sumoftheparts basis with target EBITDA multiples applied to each segment depending on our view of the growth outlook and quality of the assets Our 130 price target implies an EVEBITDA multiple of 114x on our blended CY2017Eamp821118E 5050 EBITDA of 195bn or 193x PE and supports our Outperform ratingRisks to rating and price targetamp8226amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160 Consumers leaving the PayTV universe at significantly accelerated ratesamp8226amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160 An economic recession that negatively impacts TV advertising spend andor visits to Parks ampamp Resorts assetsamp8226amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160 A rapid negative change in ratingsamp8226amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160 Underperformance of the Disney film slateamp8226amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160 Transformative acquisitionsamp8226amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160amp160 Changes to key leadership that are outside of the generally accepted successionAll values in USD unless otherwise notedPriced as of prior trading day39s market close EST unless otherwise statedLink to Full Research Report including Required Disclosures and DisclaimerThe opinions and points of view expressed in this content are exclusively the views of the author andor subjects and do not necessarily represent the views of MediaVillagecomMyersBizNet Inc management or associated writers

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The Walt Disney Company: We Put Their Magic to the Test -- RBC Capital Markets

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