Investors need to stop beating up media stocks because of Netflix

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Bob Iger, chairman and chief executive officer of The Walt Disney Co.

Disney’s upcoming internet video streaming services will thrive, according to one Wall Street firm. Wells Fargo raised its rating on company’s shares to outperform from market perform on Monday.

The media giant announced plans last month to launch a branded direct-to-consumer streaming service in 2019 and an ESPN streaming service in 2018.

“With Disney’s foray into direct-to-consumer (DTC) streaming, we can’t help but believe the TV ecosystem will soon embark on an accelerated over-the-top (OTT) path,” analyst Marci Ryvicker wrote in a note to clients. “Thus, investors may need to start thinking about increasing exposure to those media cos. with solid streaming strategies, such as … Disney.”

Disney has underperformed the market this year with its shares down 3 percent year to date through Friday, compared with the S&P 500’s 11 percent return.

The analyst raised his price target for Disney to $116 from $109, representing 14 percent upside from Friday’s close.

Ryvicker said Disney’s new entertainment streaming service will replace Netflix as the exclusive site for Disney and Pixar-branded movies when it launches.

She also noted the company’s valuation of 15 times forward price to earnings was the “trough” level where the shares bottomed out during the previous four years.

“We like the entry point for DIS even if we’re early … We view the risk/reward as heavily skewed to the upside,” she wrote. “We continue to believe Disney is a premium brand with one of the best management teams in media.”

Shares of Disney rose 0.6 percent during Tuesday’s premarket session after the upgrade.

— CNBC’s Michael Bloom contributed to this story.