By Sam Boughedda
The New York Post said Tuesday that Walt Disney (NYSE:DIS) could shed its "noncore assets," such as ESPN and ABC, in order to boost profits.
The Post reports that sales of the networks are on the table and a real option to appease activist investor Nelson Peltz' Trian Partners' desire for a higher stock price.
They state that Peltz is a longtime critic of CEO Bob Iger and has a significant $940 million stake in Disney that he "will likely add to as he gears up for war."
Following the report, Wells Fargo analysts told investors in a note that they think such a move by Disney "makes sense and would add value," while investor feedback "suggests support for such a move."
"We recently discussed the prospect of an ESPN/ABC spin at length in a note with detailed pro-forma financials. Our view remains that such a separation would allow investors to better price the risk of linear enveloped at the ESPN/ABC entity (ideally with modest leverage), while stand-alone DIS would garner incremental shareholders as a pureplay on IP," wrote the analysts.
"A split isn't about financial arbitrage (on our estimates DIS is trading at 18x CY23 P/E and 12x EV/EBITDA, so hardly inexpensive), but rather investors have indicated they like the idea since sports and Disney owned-IP are headed in different directions. The biggest obstacle is that standalone DIS needs to delever and ESPN/ABC can't lever too much due to cord cutting and sports cost increases," they added.