Hopes are high that Bob Iger, who will succeed Michael Eisner as Disney CEO later this year, will renew the company's distribution agreement with Pixar.

Mouse trap: Shares of Disney have taken a hit this year even as fundamentals have improved.

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Media malaise Disney's stock has fallen along with other media giants this year. But it is cheaper and has more growth potential than its rivals. Company  YTD Price Ch.  Est. EPS Gr*  P/E*  Walt Disney  -8.3%  22%  19.2  Time Warner  -7.0%  12%  23.5  News Corp  -13.6%  10%  24.1  Viacom  -6.6%  8%  19.7   * based on estimates for current fiscal year as of 8/5/05  Source:  Thomson/Baseline

NEW YORK (CNN/Money) - These should be wonderful times at the world of Walt Disney.

The ABC television network made a major comeback during the past TV season thanks to hits such as "Desperate Housewives" and "Lost." And the ratings success continued this summer with reality shows "Dancing with the Stars" and "Brat Camp."

The company is celebrating the 50th anniversary of its flagship Disneyland resort in Anaheim this summer, raising hopes that attendance and revenues in Disney's theme park will see a nice boost.

There is now cautious optimism that Bob Iger, who will take over as Disney's chief executive officer on Oct. 1, will be able to forge a new distribution deal with animated studio Pixar (Research). Talks broke down last year to renew their agreement and many speculated that a clash between Pixar CEO Steve Jobs and current Disney CEO Michael Eisner was a main reason.

And two vocal critics of Eisner, former Disney board members Stanley Gold and Roy Disney, recently called off their attack dogs. They shut down their Web site SaveDisney.com on Sunday.

There's even more good news. The company will report fiscal third-quarter earnings on Tuesday and analysts are expecting a 24 percent year-over-year increase in profits, to 38 cents a share.

But despite this, shares of Disney (Research) have fallen nearly 8.5 percent this year, making it one of the worst performing stocks in the Dow.

To be sure, Disney's woes on Wall Street are not unique. All the major media companies are having a rough time this year due to concerns about sluggish sales and profit growth. Shares of Time Warner (Research), the parent company of CNN/Money, and Viacom (Research) are both down about 7 percent while News Corp's (Research) stock has dropped nearly 15 percent.

But Laura Martin, an analyst with Soleil-Media Metrics, thinks that Disney's stock shouldn't be in the doldrums. She points out that the company's expected earnings growth rate of about 24 percent for this quarter and 22 percent for all of fiscal 2005 is higher than other large media stocks.

Martin thinks that ABC's ratings resurgence will be a key to Disney's long-term health. Operating profits in Disney's broadcast unit nearly doubled from a year ago in the company's second quarter.

"Every time you have a great show you can cross-promote. It allows you to introduce people to other shows and gather momentum," she said, adding that improving ratings should lead to substantially higher profit margins since there are relatively stable fixed-costs associated with running a network.

Knox Fuqua, manager of the AAM Equity fund, is also a fan of the House of Mouse. He said he bought the stock for his fund during the first quarter of this year because he thinks the ABC turnaround will continue and that the company will wind up generating strong revenue from a new theme park in Hong Kong, set to open later this year.

Fuqua added that the sooner-than-expected departure of Eisner was also a major plus for the company. The polarizing Eisner, who resigned as chairman last year after a sizable shareholder vote of no-confidence against him, was originally not expected to give up the CEO post until his contract expired in September 2006.

"Ever since the company made the decision to [phase] out Eisner, they have made a lot of good strides. I'm surprised by how much Disney has done in such a short period of time," he said.

But others think that a fairy-tale happy ending for Disney is far from certain. One media analyst at a large institutional firm that has sold a significant amount of Disney stock over the past year said that because ABC has been such a big success for Disney, the company will now face much tougher comparisons.

In addition, the analyst said that Disney's movie studio division, which accounted for nearly 20 percent of operating profits and 30 percent of revenue in the second quarter, remains a question mark. Disney has not had any major box office hits this summer. With this in mind, the analyst said that shares of Disney, currently hovering around $25.50 (smack in the middle of its 52-week range) are more attractive in the low $20s.

But investors are hopeful that fortunes for the studio division will change later this year. The company will release the computer-generated animation film "Chicken Little" in November. And in December comes "The Chronicles of Narnia: The Lion, the Witch and the Wardrobe," based on one of the seven books in the popular children's series by CS Lewis.

Fuqua, for one, is confident that the company will have a solid fall and that will translate to some more magical returns for the stock.

"Disney usually does well around the holidays," he said. "This is the only media stock I own and I want to own Disney because I think it will be a lot higher than where it is today."

For a look at more media and entertainment stocks, click here.

For more about Disney and Pixar's negotiations, click here.

Soleil's Martin does not own shares of Disney and her firm has no banking ties to the company.

The writer of this story owns shares of Time Warner through his company's 401(k) plan.