The Ratings Game: It turns out Disney’s ESPN isn’t eroding. But here comes the hard part.

Walt Disney Co. largely soothed Wall Street’s fears with its latest financial disclosures, which showed steady revenue for the ESPN business.

Yet here comes the hard part. “ESPN has been more stable than expected,” Morgan Stanley’s Benjamin Swinburne wrote, but “now can it grow again?”

Disney
DIS,
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late Wednesday broke out its financials into new segments, showing 3% revenue growth for its domestic ESPN business, which includes the linear ESPN networks and the ESPN+ streaming service, through the first nine months of the company’s fiscal year.

See more: Disney reveals ESPN’s financials, proving its sports business isn’t ‘imploding’

“While 3% is modest growth, compared to the overall US linear TV market both at Disney and overall, it is significant outperformance,” Swinburne wrote in a Thursday report, flagging that he estimates a 6% decline for Disney’s U.S. linear networks in the same span.

Disney is eying at least one new chapter for ESPN. The company has teased the eventual launch of a streaming service for the flagship network, and it may bring on equity or strategic partners. It would figure that Disney likely wants to grow the ESPN business.

Read: ESPN’s ‘melting iceberg’ is yet another challenge for Disney, analyst says

“This will not be easy given known cord-cutting trends,” Swinburne said. “In addition, sports rights costs will likely escalate faster than 3% — evidenced in the 4% [year-over-year] decline in domestic ESPN [operating income on a year-to-date basis]. However, it is starting off on a more stable base than we had expected and should benefit from broadly rising engagement levels across both its live content and shoulder programming.”

Swinburne said that stabilization — and especially growth — of ESPN’s operating income would likely help the shares, which he rated at overweight with a $105 target price.

Bernstein analyst Laurent Yoon also called out the top-line stability for Disney’s sports assets, while highlighting the challenges ahead of the company as well.

“With the cost of sports rights continuing to escalate, Disney needs to prove that ESPN can be the sports aggregator, and thus earns its keep in that manner,” he wrote. “It has been reported to look for partners for ESPN to share the economics, or to unite ever more sports under one roof and thus become a true sports aggregator.”

He recently established an outperform rating and a $103 target price on Disney shares.

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