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Cable Should Fuel Disney Earnings Growth

10/26/2007 8:00 PM Eastern

Banc of America Securities media analyst Jonathan Jacoby maintained his “neutral” rating and $37 per share 12-month price target on The Walt Disney Co., adding that the Burbank, Calif.-based media giant should beat his earnings per share estimates in the fiscal fourth quarter.

In a research report, Jacoby wrote that led by strong expected cash-flow growth at Disney’s cable networks and consumer products division, the media giant should surpass his 38-cents-per-share EPS estimate for the quarter. However, he added that earnings per share could be adversely impacted by its broadcasting segment — including the ABC Television Network — and the degree to which weak broadcast ratings, offset by a strong scatter market, affect the bottom line. Jacoby’s estimates for revenue ($8.8 billion) and cash flow ($1.7 billion) for the period were unchanged.

While Jacoby expects broadcast revenue to decline 14% in the quarter and cash flow to dip 87% in the period, cable is expected to show a 20% rise in revenue and 21% growth in cash flow, based on strong ratings growth. Jacoby wrote that cable ratings were up about 10% in the period, versus his estimate of 4% ratings growth. Also fueling the analyst’s optimism: the strong performance of High School Musical 2 on the Disney Channel and ABC Family — the sequel’s premiere had 10 million more viewers than its predecessor and was the most watched basic-cable telecast in history.

“We expect Disney to monetize High School Musical 2 in the next few quarters with DVD, CD ad consumer product sales,” Jacoby wrote.

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