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

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  • 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.

Disney is flat so far this year. 

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