A Wall Street analyst modeled the impact of Disney's new streaming service - and now he's even more bullish on the stock

• Disney started its direct-to-consumer (DTC) efforts in April 2018, launching the ESPN+ streaming service.
• Disney said it also plans to launch another DTC service, Disney+, in late 2019, and that it would remove all its movies from Netflix this year.
• Disney's Direct-to-Consumer & International business will take a bite out of its earnings per share in the fiscal year 2020, but won't put pressure on the stock value, according to analyst Todd Juenger at Bernstein.
• Watch Disney trade live here.

Disney's new direct-to-consumer (DTC) streaming business will take a bite out of its profits in the next few years, but that won't stop its stock value from rallying, an analyst says.

"The (obvious) bullish view is: the downward revisions and DTC losses won't matter to the stock," said Todd Juenger at Bernstein in a note out on Friday.

Disney started its DTC service efforts in April 2018, launching the ESPN+ streaming service. ESPN+ hit $1 million subscribers in September. The company also plans to launch another DTC service, Disney+, in late 2019.

Disney labeled these two services and other international channels as Direct-to-Consumer & International (DTCI). Disney disclosed in an SEC filing earlier this month that its DTCI division had lost $738 million in operating income for the first nine months of 2018, on revenue of $3.4 billion, though most of that came from the international channels.

"Disney will need to absorb around 10 years of cash outflows, before they will turn positive," Juenger said. He estimated $400 million of EBITDA in 2030 for the unit.

Based on the calculation of Disney's DTCI business, Juenger lowered his EPS forecasts for Disney from $7.67 to $6.46 in the fiscal year of 2020. But he raised his price target from $114.00 to $119.00 - 7% above where shares are trading on Friday.

Usually, downward revisions of EPS would be a really good reason to have a negative view on the stock, Juenger said. But in this case, the revisions won't put pressure on the stock because investors will do a sum-of-the-parts calculation, putting reasonable multiples on the legacy businesses, and the sum total will add up to more than the current enterprise value, he said.

Now read:

• UBS says investors are valuing Disney's streaming assets at only 1/10 of Netflix, and it points to a big debate in the industry
  

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