Spinning off ESPN and ABC from Disney is the best move that CEO Bob Iger can make for the entertainment giant and its stock, according to Wells Fargo. The bank is predicting the split will likely come in late 2023, after Disney implements cost-cutting and balance-sheet initiatives. Those first moves may include ESPN going a la carte in streaming and Disney considering selling Hulu to shore up its balance sheet, analyst Steven Cahall said in a note Tuesday. “Recall that Iger built DIS into what it is today: a franchise [intellectual property] leader with global scale. ESPN, traditionally the cash cow, is neither owned-IP nor global the way the rest of DIS is,” he wrote. Iger returned to the helm in a surprise move in November, replacing his hand-picked successor Bob Chapek, who had come under fire for his management of the company. The rationale for the spinoff is not financial engineering, but rather portfolio improvement, Cahall said. “DIS’s linear business is shrinking while [direct-to-consumer] is growing,” he said, pointing out that linear is largely sports while DTC ties directly into theme park experiences, consumer products and gaming. “Sports does not have these ancillary monetization models,” Cahall said. “In short, DIS is a franchise IP company with a monetization flywheel. Sports is a distribution business where value accrues to leagues. We believe that there is very little reason for DIS and ESPN to remain together given the evolution of media consumption.” Wells Fargo’s price target of $125 implies 46% upside from Monday’s close. Disney’s stock is down more than 44% year to date in 2022. — CNBC’s Michael Bloom contributed reporting.
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