Wells Fargo & Co (NYSE:WFC) made a contrarian case for Walt Disney Co (NYSE:DIS) to exit the streaming business, estimating the move could lift the company’s stock by about 40% by allowing it to refocus on content creation and licensing.

While the firm lowered its price target on Disney to $125 from $146, it maintained its Overweight rating, according to a report by Investing.com

Streaming Exit Could Unlock Value

Wells Fargo analyst Steven Cahall said proposed that Disney return to its historical model of producing content rather than distributing it directly through Disney+.

“We lay out the case for DIS to return to its old biz model of producing vs. distributing,” Cahall said, estimating the shift could add about 40% to Disney’s stock price by reducing earnings risk and allowing management to focus on its intellectual property (IP) and experiences business.

Shares of Disney have fallen 14.17% year-to-date and have slumped nearly 20% over the past year. In the past five years, the stock has tumbled 46%.

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Licensing Model Over Streaming

Wells Fargo estimated Disney could earn nearly $4 billion annually from global pay-one licensing rights alone after comparing Disney’s box office performance with Sony Group Corp’s (NYSE:SONY) movie licensing agreement, Investing.com added.

“DIS commands 3x the global box office implying nearly $4bn for global pay 1 alone,” the analyst added.

Cahall estimated that including pay-two licensing windows and Disney’s content library could lift annual licensing revenue above $15 billion, providing a far more reliable cash engine than the company’s direct-to-consumer streaming business.

Streaming Strategy Faces New Debate

Disney shifted its strategy in 2019 by pulling much of its content from third-party platforms and making Disney+ the centerpiece of its direct-to-consumer business.

Cahall questioned whether competing directly with platforms such as Netflix Inc. (NASDAQ:NFLX) and YouTube, a subsidiary of Alphabet Inc.‘s (NASDAQ:GOOG) (NASDAQ:GOOGL) Google remains the best long-term use of Disney’s IP.

Price Action: Disney closed 0.50% higher on Monday at $96 and edged 0.04% higher in extended trading.

Benzinga edge rankings indicate DIS has a Momentum score in the 12th percentile and a Growth score in the 74th percentile.

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Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.