Analysis: DIS NFLX CVS CMCSA VIAB CBS

Disney (DIS) shares were rising in early trading this morning as more sell-side analysts are weighing in on their expectations ahead of the April 11th Investor Day event. This morning, Cowen upgraded their DIS rating to Outperform with a new price target of $131, and MoffettNathanson wrote positively on the stock as well.

In our previous Alerts, we have been writing extensively about what Disney is going to unveil at this game-changing event, noting what the Fox acquisition brings to the table in our Alert here as well as other takes from the sell-side. In Cowen's base case assumption today, they believe the Disney+ reaches ~30 million global subscribers by FY21 year end.

We want members to fully understand that numbers (earnings expectations) are going to come down when Disney speaks on Thursday, but this will not be the result of a struggling business. In fact, as we know from recent quarterly performance (see our Alerts here and here), Disney has been performing quite well, with stabilized results at ESPN; sharp outperformance in Parks, Experiences, and Consumer Products; and a film slate filled with expected blockbuster hits. Instead, numbers will drop due to the amount of investment required to usher in and advance the new direct-to-consumer strategy that will keep Disney competitive in where the industry is going - direct to consumer streaming services. The associated costs will be necessary for future success, and the market tends to apply a higher premium on those companies who can successfully build out this strategy. Netflix (NFLX) is the key example.

Although we typically don't like buying ahead of a number cut (and what has happened with CVS Health (CVS) has not left us), we've kept our ONE rating because we think you can buy a little ahead but leave room for after. We ourselves bought shares not too long ago in our Alert here when the stock traded below $109.

A key debate with Disney is this: will people still favor the stock when numbers are brought down? Cowen is saying this morning that investors still will, and MoffettNathanson shared this view too. We agree as well, with our only caveat being that we would turn cautious if numbers are slashed too deeply. But what Disney should have going for them is transparency. Disney is expected to provide details such as subscribers projections, costs, and lost licensing fees that will occur as a result of Disney content being pulled from other services such as Netflix. This granularity should be more appreciated compared to what CVS Health did, as the latter did not provide the amount of scope into the Aetna deal as we would have preferred (this could still come at a June Investor Day).

April 11th will be an important day for Disney and for the entire media industry. The key to our Disney thesis has been an underappreciated business model shift to direct-to-consumer, and Thursday's event will put that plan into motion. We will be out with more coverage as the event progresses.

Comcast (CMCSA) touched a new 52-week high this morning on the heels of an upgrade to Outperform by analysts at Macquarie. The research firm provided four upside points to their Comcast thesis, which ranges from the digital ambitions and subscriber growth of Sky; Xfinity's ability to stay relevant (we call this "stickiness") in a "rapidly evolving video landscape"; a strong 2019 film slate and a first half 2020 NBC streaming service launch; and lastly, quick deleveraging to ~2.4x by year end 2021.

Shares have now gained roughly 14% since the close on September 24th 2018, the day the stock dropped approximately 6% on the news that Comcast had secured the winning bid for Sky plc. On that day we discussed how the market initially (and incorrectly) has never shared the same M&A vision as CEO Brian Roberts, and this difference in opinion historically led to sharp selloffs in reaction to a transformative deal. Due to Robert's strong track record of success with large transactions, we warned, "go against him at your own peril" because these large transactions ended up being very rewarding for shareholders. The Sky deal is still in its early innings, but we are beginning to see this call hit again as the SPX is down roughly 1% over the same time period.

Lastly, a caller on last night's "Mad Money" asked Jim about his thoughts on Viacom (VIAB) . Jim agreed with the caller's assessment on VIAB, sharing the view that it is cheap, the company has great content, and a merger with CBS Corp (CBS) is likely based on a huge amount of cost synergies that could be realized (last week RBC Capital Markets estimated in their VIAB upgrade note that merger synergies could be ~$1 billion by CY20). Jim added later that he believes Viacom is the cheaper of the two because he thinks they are having good quarter. This consideration matters because we never give countenance to an investment solely on a takeover basis.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long DIS, CVS, CMCSA, VIAB.