Wells Fargo says this could be a good long-term buying opportunity for Disney, sees more than 30% upside

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Wells Fargo advises investors to consider Disney as a future investment. Analyst Steven Cahall kept his overweight rating and cut his price target from $110 to $106, a reduction of $36. The new price target still implies a 34.7% increase from Friday’s closing share price. Cahill wrote in a note on Tuesday that “DIS is to us the most interesting media stock: an IP powerhouse in trouble, with a COVID-price and a historically low multiple.” “As we approach CY24, the DTC earnings/margins narrative begins to emerge as a key reason to hold DIS for the long term… We think the bad news has been baked in.” Shares were essentially flat on Tuesday. Stocks have fallen about 6% in the past year as Disney+ subscribers are dropping, ad budgets are being cut, and Netflix has launched a new streaming tier. Disney and Charter Communications have also been in conflict recently after they failed to agree on a new carriage deal, partly due to the fees Disney wants for its bundle programming. Disney’s channels include ABC and FX. It also holds a majority stake of Hulu. Cahill presented a bull- and bear-case for Disney. His bull case valued the stock at $145 per share and his bear case at $75 per piece. In his bull case for Disney, the analyst highlighted positive catalysts, such as Disney’s “remarkable intellectual property library.” Cahill believes that Disney+’s story will be about the price and margins and not subscriber growth, as kids and families make up two-thirds. “We believe D+ is under-priced in comparison to NFLX based on the $/mo ARPU for $bn of content, including. Cahill stated that “we’re bullish about price increases” because of the DIS library. He said that if Disney licensed its library it would generate approximately $11 billion in revenue annually and be valued at about $55 billion based on conservative studio/IP multipliers. Wells Fargo’s analyst said that Disney’s DTC business’s long-term earnings and margins would “emerge” as the main reason to own stock. Cahill acknowledged that the short-term outlook was risky, due to DTC subscriber churn and Disney’s ongoing Charter dispute. Analysts’ bear case stated that it will take some time for the entertainment giant to improve its content. Box office and Disney+ subscribers are expected to suffer during this period. Analysts said that if ESPN’s DTC transition is not successful, it could lead to a “long term EPS hole.” Michael Bloom, a CNBC reporter, contributed to this article.