With concerns around the ESPN franchise abating, analysts are becoming increasingly bullish on Walt Disney Co stock.

The latest earnings report by Walt Disney (NYSE:DIS) didn't have anything exceptional for shareholders. Disney reported a 3% decline in revenue, while non-GAAP EPS declined by 10% YoY. The decline in revenue was expected as Q1 2016 revenues were padded up by the exceptional performance of Star Wars: Force Awakens. However, Q1 2017 revenues were lower than expected, though the House of Mouse reported a beat on earnings. In spite of the revenue miss, Disney stock is up slightly since earnings.

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Disney's operating cash flows tumble

Walt Disney has been a massive cash generating machine. In FY 2016, the company generated $13.2 billion in cash from operations, up 21% YoY. However, in Q1 2017, the operating cash flow came in at $1.26 billion, down 48.6% YoY. In Q1 2016, the company had reported operating cash flows of $2.45 billion. The decrease was largely due to higher pension and post-retirement medical plan contributions in the current period. Free cash flow declined from $1.05 billion last year to $220 million in the latest quarter.

Parks and Resorts continued to drive growth

Disney's Parks and Resorts continued to see strong growth, both in its domestic and international operations. Revenue from Parks and Resorts grew by 6% while operating income grew by 13% YoY. This growth was in spite of the adverse effect of hurricane Matthew, which disrupted operations at Walt Disney World and a week of winter holidays falling in the previous quarter. Both the events combined had an adverse impact of about 7% on Disney's operating income. The growth in operating income was driven by higher ticket prices, food and beverages cost and hotel room rents. In fact, Disney has been increasing prices at Disney World every year since 1989.

Growth in international operations was driven by the Shanghai Disney Resort, which opened in Q3 last year. The Shanghai Resort has been a huge hit. More than 7 million people have visited the Shanghai resort to date and Disney expects total visits to reach 10 million by the time the Shanghai Disney Resort celebrates its first anniversary. The resort was operating at almost full capacity throughout the Chinese new year. Disneyland Paris and the Hong Kong Disneyland Resort also posted better results.

The addition of Pandora – The World of Avatar at Disney’s Animal Kingdom will be another crowd puller. Disney is also planning to open Star Wars lands at Disneyland Resort and Walt Disney World by 2019. With rising income and consumer expenditure, the Parks and Resorts segment will remain a key growth driver for Disney.

Concerns around ESPN continue to linger?

The Cable Network continued to remain a soft spot for the House of Mouse. Revenue from the Cable Network segment fell by 2% while operating income declined by 11%.  In its press release, Disney attributed the operating income decline in its Media segment to a "decrease at ESPN". The decline in the ESPN profits was due to higher programming costs and lower advertising revenue. The increase in programming cost was driven by the contractual increase in NFL and NBA payments. Lower advertising revenue was due to shifting of three College Football Playoff (CFP) games to the second quarter. Last year, Six CFP games were held in Q1, while only three games were held in Q1 this year.

Continued subscriber loss and higher programming cost have remained a drag on ESPN for a while now.  In fact, concerns surrounding ESPN have been the main reason for the under-performance of Walt Disney stock. Over the past few quarters, the House of Mouse has taken several steps to mitigate investors' concerns about ESPN. Last year Disney acquired a 33% stake in BAMTech, a sports streaming service controlled by MLB and NHL, for $1 billion. Also, ESPN recently became available on DirecTVNow, an OTT service. Disney has also signed deals to include ESPN and other channels in Hulu's upcoming launch. There is also speculation that Disney is about to launch a live TV bundle, which will include ESPN on YouTube. The company also announced that it will launch a direct to consumer sports streaming service this year.

While there is still speculation about whether Disney's latest move into digital content distribution will pay off, there are many who think that payment from online streaming and digital distribution will more than offset the revenue decline due to subscriber loss. RBC Capital Markets analyst Steve Cahall increased his price target on DIS stock to $130 citing Disney's digital distribution plans. "What we think is really getting better with ESPN is these new virtual cable distribution platforms," Cahall told CNBC in an interview.

Walt Disney Stock is a good buy for 2017

Walt Disney stock has underperformed the S&P 500 (INDX:SPX) over the last one year. Continued pessimism around the ESPN franchise has been the main reason for this underperformance in spite of the strong showing by the Studios and Parks segments. Disney has been trying to alleviate investors' concerns by signing several deals with OTT players and streaming services. If Disney is able to convince investors that concerns around ESPN are overblown, then Disney stock could go much higher. There are signs that investors are buying into Disney's story. Goldman Sachs analyst Drew Borst upgraded Disney stock to 'buy' with a price target of $134 as he sees ESPN headwinds abating, and studios continuing to show strong performance. Long term investors should consider buying DIS stock.