Disney Share Repurchase Could Balance Pixar Buy

Morgan Stanley raised its price target on shares of the Walt Disney Co. to $31 from $28, saying the cost of the Pixar acquisition will likely be offset by management's accelerated share repurchase program.

Analyst Richard A. Bilotti said the dilution of roughly 10 cents per share from Disney's acquisition of Pixar (nasdaq: PIXR news people ) Animation Studios should be offset by the repurchase of $500 million-worth of Disney shares in the second quarter and the planned repurchase of even more shares in the second half of the year.

Along with raising the price target on company stock, Morgan Stanley increased its fiscal 2006 revenue estimate to $34.57 billion from $33.97 billion, as well as its 2007 revenue estimate, which rose to $34.46 billion from $33.94 billion.

Bilotti said much of the upward revenue revision was driven by upside to Disney's U.S. theme parks. The other factors included a stronger forecast for home video in the second half of the year, better margins in broadcasting and cable television, as well as affiliate fee growth in cable.

"We continue to believe that Disney's shares are fairly priced relative to the broad market," Bilotti wrote in a research note Friday.

Disney shares are currently trading at just under $30. The stock's highest price over the last 52 weeks was $30.45.

Still, the analyst said Rupert Murdoch's News Corp. (nyse: NWS news people ) remained more attractive when compared with Disney as an entertainment conglomerate.

He said News Corp. is more likely to sustain an earnings-per-share growth rate of around 17% to 18% for the next four to five years, versus Disney's growth rate of around 13% over the next four years.

Bilotti maintained an "equal weight" rating on Disney shares, but rated CBS (nyse: CBS news people ), News Corp. and Viacom (nyse: VIA-b news people ) "overweight" in the entertainment industry.


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