Maintains "Overweight" rating on Disney (DIS.US) ahead of earnings.

Before Disney (DIS.US) announced its third-quarter earnings, Morgan Stanley maintained its investment rating on the entertainment giant. The bank said the recent sell-off reflected concerns about the macro backdrop, especially on its theme parks, but they see it as a buying opportunity.

On the business side, Morgan Stanley believes that theme parks and resorts have a unique appeal to investors and are the key drivers of long-term profit growth, and support Disney's stock multiple.

The bank said in its August 4 report: "While this is fundamentally cyclical, the long history of theme parks bouncing back quickly after any economic downturn suggests that the current level is overly cautious."

Morgan Stanley believes that the performance of Marvel and Pixar has improved "ahead of expectations" and that the film performance this year has exceeded expectations.

The bank's analysts said: "Toy Story 2 is Pixar's highest-grossing film ever, and Suicide Squad is the highest-grossing opening weekend for an R-rated film... Additionally, we look forward to the film slate for the rest of the year, including Star Wars: The Force Awakens and Moana."

Looking ahead, Morgan Stanley said the company needs to continue to prove that the studios can deliver and guide and perform on theme parks, and raise the DTC margin to double digits.

Morgan Stanley forecasts Disney's third-quarter revenue at $23bn, adjusted EPS at $1.17. They maintain an "overweight" rating but lower the target price by $20 to $110, implying a 25% upside from current levels.

In a bear market, they expect the stock price to reach $80, implying a 10% downside from current levels, and a 55% upside in a bull market to $140.