Disney Looks Cheap as It Beats Expectations

Neil Macker: Disney reported a strong start to its fiscal 2019, as the company beat on both top and bottom lines. However, the really key point for us was more information around the firm's direct-to-consumer efforts including ESPN+ and Disney+. Both of these services will be key to the company as it moves through a transitional year in fiscal 2019and into further growth in fiscal 2020 and beyond.

At ESPN+, Disney's had a strong start with over 2 million paid subs currently. This start was buoyed by the first UFC event in January, which saw over 600,000 sign-ups in the lead-up to the event. While sign-ups were strong, there were technical issues with the stream during the event itself. We expect that Disney will iron out these issues before the launch of Disney+ later this year.

While the studio business was weak in the fiscal first quarter, the company does have a strong slate for the remainder of fiscal 2019, including Captain Marvel in March, Avengers in May, and then Toy Story in June. While the company may not be able to match its 2018 record-breaking at the box office, all of the titles will be available at launch or soon afterward on Disney+, one of the reasons we remain positive on management's big bet on the future of Disney.

We are maintaining our $130 fair value estimate for Disney. With shares trading in the 4-star territory, the current price point may offer attractive entry point for investors.