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Needham thinks these two entertainment titans should tie-up
The Fly

Needham thinks these two entertainment titans should tie-up

Needham says combination with this entertainment giant could drive 15%-25% upside for Apple shareholders

Disney (DIS) and Apple (AAPL) are two entertainment titans on their own, but can they be worth more together than separately? Needham analyst Laura Martin believes so as she sees each company offering something the other does not have. 

A GOOD MATCH: Keeping a Buy rating on Apple with an unchanged $170 price target, Needham analyst Laura Martin speculates in a research note that the company and Disney could be worth more together than separately. The analyst believes that strong distribution and world-class content are "complementary networks," and are worth more together than separately.

Furthermore, the analyst sees each company offering something that the other does not have. What Apple does best is distribute content globally to 2B high-end mobile devices owned by 1.25B unique and wealthy users, and what Disney does best is create AAA content franchises, which it distributes globally across all screens, as well as in the physical world. Using four forms of valuation, the firm concludes that combining Apple’s global distribution footprint of 1.25B unique consumers with Disney’s 570M consumers reached each year would drive 15%-25% valuation upside for Apple shareholders.

The firm also believes that Disney might be valued at Apple’s level "if it had no value leakage," but Apple can buy Disney for one tenth the cost of Apple owing to the value that Disney creates for adjacent companies in ecosystems in which it participates.

WHAT’S NOTABLE: Discussing a possible sale of Hulu earlier this month, Wells Fargo said it believes Disney is unlikely to do so, despite press reports and investors saying otherwise. There are questions on whether it should happen, but even more material is there is a lack of buyers, the firm told investors in a research note. While Disney CEO Bob Iger has said all options are on the table, and recent reports suggest he has been advised to sell Hulu, "it takes two to tango," and Disney’s options to shed the asset are limited, contended the firm. Wells also noted that Comcast (CMCSA), believed by most investors to be the most likely buyer, has a 2024 put on its Hulu stake that is currently worth $9B. It is more likely Comcast exercises that and pursues other deals. The firm thinks investor expectations for Disney selling Hulu "have run too far too fast." Investors counting on a Hulu divestiture could be disappointed, it wrote.

PRICE ACTION: In Thursday morning trading, shares of Apple and Disney have gained about 1% each to $162.15 and $98.18, respectively. 

Keywords: merger, M&A, acquisition

Published first on TheFly

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