Thanks to pics, Wall St. bullish on Mouse

Investors turn eye towards upcoming film slate

Movies may be the key to keeping Walt Disney Co. stock kicking and Wall Street investors smiling.

In recent years, Wall Street has been focused on Disney’s ability turn around ABC and its consumer products division, but a lot of eyes are now on the studio’s ability to shore up its film slate with pics including the upcoming Pixar pic “Cars” and Walt Disney Pictures’ sequel to “Pirates of the Caribbean.”

Already, since Bob Iger ascended to the top job last fall, there’s been a turnaround in the Disney stock, even as investors mostly shunned media firms. The shares have jumped to near $28 — from a 52-week low of under $23 before Iger took over — beating out rivals News Corp., Viacom, CBS Corp. and giant Time Warner.

Looking ahead, however, some wonder what will keep the price up in coming years. As much as Wall Street loves a CEO, they love what they call a “catalyst” — a new event, in the future, with the potential to turn a company’s fortunes around.

The film business may have the greatest potential for improvement, and investors are optimistic about the strategy of focusing on family films, especially CGI animated fare. Disney is throwing all its marketing muscle behind “Cars.”

“The word synergy is so overused, but historically no one could really bring all the pieces of a company to back a picture. It’s backing ‘Cars’ almost as much as it’s ever backed anything,” says Alan Gould of Natexis Bleichroeder.

In the street’s view another plus was when Iger got Apple and Pixar’s Steve Jobs in his corner.

“What he has done out of the gate has been almost flawless,” says one fund manager. While some may grumble at the rich pricetag, “Iger got Pixar, which created value since the stock went up. By doing something (former CEO Michael) Eisner couldn’t have done, he proved his value.”

“In the media world, perception counts more than in most industries. And the perception is he’s not playing defense, he’s playing offense,” says another money manager.

Iger has getting a lot of credit for being a forward thinker. He was the first to offer network shows on the iTunes and the first to stream them on the web, and he infuriated exhibitors by speaking frankly of the need to compress distribution windows.

“Disney is the only entertainment company that’s benefiting from a change in senior leadership, which enables greater outperformance compared to where it began,” says analyst Laura Martin of Soleil/Fulcrum.

By publicly questioning traditional distribution models, Iger has played to Disney’s strengths. “Disney doesn’t have distribution in the traditional sense,” notes one investor. “They don’t have many stations, and they sold off radio. They have less to protect” than other congloms.

To be sure, the programs they’re putting out for alternative distribution –“Lost,” and “Alias” and “Desperate Housewives” –may have much less value in syndication, given their serialized format. “They’re chronological, not much shelf-life,” the investor adds. Revenue online, while growing, is still “peanuts.”

Iger’s moves come as News Corp. chief Rupert Murdoch has jumped in with billions of dollars of Internet acquisitions, including MySpace.com. While Wall Street idolizes Murdoch, he makes them nervous too. He founded and controls his company and makes big bets on the long term. They wonder how much he’ll spend, and what it will mean for News Corp.’s bottom line.

“We think Bob Iger builds value over a time frame that is more consistent with investors’ time frames,” says Martin.

Still, even as investors look to movies to enhance Disney’s growth, some question just how much difference it will make compared to other stocks. For instance, some investors see Viacom’s Paramount as having a much greater untapped potential as it reinvents itself and builds up its slate.

“I’m more bullish on some of the other media stocks now because Disney’s had a good run and it’s more expensive, and I don’t think the growth is any greater (than its peers). And I do question the price paid in the Pixar deal,” says Gould of Natexis Bleichroeder.

“I know the Street loved the deal,” he says. “Call it a six-billion-dollar difference of opinion.”

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