With ESPN and the NBA Season Back, Disney Could Hit $46

DIS: Walt Disney logo
Walt Disney

Media and Entertainment powerhouse Disney (NYSE:DIS) avoided a scare as the National Basketball Association lockout was resolved over Thanksgiving weekend. Disney sports television subsidiary ESPN generates revenue through advertising and with fees through cable networks such as Time Warner (NYSE:TWX), Comcast (NASDAQ:CMCSA) and DirecTV (NASDAQ:DTV). Without the NBA, interest in ESPN may have been diminished.

The NBA will begin its 66 game season on Christmas day with an entertaining triple header. Disney’s most valuable asset is ESPN which contributes 28% to the company’s stock price and is greatly benefited by the NBA during the winter and spring each year. The fast paced, action packed NBA makes for perfect television on ESPN’s signature highlight show Sportscenter.

Trefis predicts that ESPN will steadily grow from $3.40 per subscriber to $3.70 per subscriber in 2017. ESPN is pretty saturated in the U.S. with penetration into 97% of pay TV houses and 87% overall. However, the company still has opportunities to substantially grow its presence internationally. As the NBA lockout has ended, ESPN will be able to generate more revenue from advertising sponsors as well.

Television Steady Long Term Growth

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Disney is long past the days when it was a theme park and movie company. Television provides 61% of the value of the company’s stock. In particular, Disney generates revenue from the ESPN family of networks, A&E, ABC Broadcasting, Lifetime and of course the Disney Network.

The company has several ways to increase the value of its television networks to the overall company. As mentioned above, they can continue to grow internationally. With theme parks in Europe and Asia, it can also continue to leverage its brand and expand its television networks to capture the faster growth of international markets. In addition, the company has the option of spinning out the television networks as a standalone company which would be valued higher than the other businesses.

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