Analysts Laud Disney's Lucasfilm Acquisition Despite High Price Tag
While they acknowledge a near-term earnings drag, one says "Star Wars," Marvel and Pixar will "provide a powerful kids and family content pipeline for many years."
Wall Street analysts on Wednesday lauded Walt Disney's $4.05 billion deal to acquire Lucasfilm and continue its Star Wars franchise.
"Our initial, necessarily abbreviated [due to Hurricane Sandy], analysis says this deal looks more promising than the Marvel acquisition in 2009, a deal now widely lauded," Lazard Capital Markets analyst Barton Crockett said in a report.
Disney said the deal would dilute its earnings in the low single digit percentage range in 2013 and 2014 before becoming accretive to earnings when the next Star Wars movie comes out in 2015.
"For about the same purchase price [as Marvel], Disney is buying another big, young male skewing franchise to expand its diversification from young females," Crockett said. "Lucasfilm's $215 million in licensed merchandise fees is comparable to pre-acquisition Marvel, but has more room for a Disney boost from insourcing and expanding international as Lucas' mix is under 40 percent international versus Marvel's over 40 percent."
He added: "In 2005, when its last movie came out, Lucasfilm made $550 million in operating profit, nearly $200 million above the highest level ever attained by Marvel."
Barclays Capital analyst Anthony DiClemente also said that the latest Disney acquisition borrows a page from the Marvel playbook.
"Marvel characters have flourished under the stewardship of Disney and its management team, at least in part evidenced by the summer's blockbuster success of The Avengers and its ancillary contributions," he wrote. The Lucasfilm deal "continues Disney's well-worn strategy of acquiring valuable intellectual property and monetizing it better through its global, multi-product distribution engine."
He acknowledged the near-term hit to earnings and adjusted his financial estimates accordingly, maintaining his $52 price target on Disney. But DiClemente emphasized: "As was the case for Disney's Pixar and Marvel acquisitions, although near-term financial returns will be difficult to justify, long-term strategic benefits may crystallize over time."
He suggested that Star Wars could lend itself for new Disney theme parks rides and offers, even though the company already has Star Wars attractions in its parks, cable TV shows and consumer products, "which we think could be the biggest driver of value."
Davenport & Co. analyst Michael Morris entitled his report about the acquisition "Disney Buys Star Wars, Further Bolstering Content Powerhouse."
"We like this acquisition as the 2013-2014 [earnings] dilution estimate provided by management implies limited negative [stock] valuation impact of around $1.50-$2.00 per share at the current multiple before what should be a meaningful operating profit contribution in 2015," Morris said. "This is not inexpensive, and the valuation will be debated, however with Pixar, Marvel and now Star Wars franchises to compliment the Disney brand, [the company] should provide a powerful kids and family content pipeline for many years."