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Yes, Walt Disney's "The Lone Ranger" Bombed. Big Deal.

Jon Friedman
July 11, 2013

You'd think that this should be an especially trying time at the Walt Disney (NYSE: DIS).

The entertainment and media giant's ballyhooed summer popcorn movie The Lone Ranger was an opening-weekend box-office fiasco and represented a public embarrassment for the Magic Kingdom company. Its performance was so catastrophic that it has sparked comparisons with Disney's other major movie nightmare in recent memory, John Carter.

Starring Johnny Depp, The Lone Ranger opened with an anemic figure of about $49 million in the United States and Canada. Meanwhile, the animated film Despicable Me 2, from Comcast's Universal Pictures posted a remarkable result of $142 million. Adding to Disney's misery, the company spent an estimated $250 million to produce The Lone Ranger while Universal invested about $76 million on its animated feature. 

Putting further stress on Disney, one of its flagship franchises, ESPN, appears to be under pressure to continue to flourish with the debut next month of hard-charging rival Fox Sports 1.

Yet Disney's much-followed stock has not suffered. Wall Street has been able to look past the Chicken Little headlines because analysts see the big picture.

On Monday, Credit Suisse stressed that it was raising its target price to $74 from $73 for Disney. True, a single dollar doesn't seem like a big deal, but what matters here is the timing of the investment banking firm's move -- reassuring Disney investors that Credit Suisse strongly believes in the company, and its price target connotes a potential 14% upside from its price at the time. Credit Suisse noted:

With the majority of key affiliate deals and sports-rights deals locked up into the next decade, revenue and cost visibility remains high for ESPN. We project an 8% 5-yr CAGR [compound annual growth rate] for Cable EBIT [earnings before interest and taxes] with affiliate renewals balancing elevated cost growth in FY 14-15, followed by longer term margin expansion as costs normalize.

The Star Wars franchise should drive strong profit growth and mitigate risk at the Studio with fewer risky high budget films. Further, our analysis indicates more upside at Consumer Product than consensus est. Overall, we are raising our Lucas EBIT est by 40% and 61% in FY14 and FY15. Based on trends at other Asian parks and the large local market, we conservatively estimate Shanghai can debut w/7m visitors and $748m rev in FY16. Entry into the Chinese market should also create opportunities for other DIS businesses.

Nineteen equities analysts have placed a buy rating on Disney, and one says it is a strong b