Shares of Disney were nearly cut in half from their peak pre-pandemic to the pandemic low in March of 2020 as investors perceived each of its business divisions to be under pressure.
A year later, Disney’s stock soared to a record high of nearly $200 a share partly on a very impressive launch of its streaming service Disney+, only to lose about 30 per cent from there.
Now, after a surprisingly robust earnings report, the magic is returning to the company and at least one analyst sees 40 per cent upside for the stock.
Here are two brief analyst views on Disney’s performance and bright prospects.
From J.P. Morgan:
Disney has the best brands and flywheel in the industry, which allows it to leverage industry-leading intellectual property across multiple distribution platforms.
- Its legacy Parks business has bounced back ahead of expectations, and we anticipate the segment emerging from COVID-19 with more profit upside longer-term, despite some near-term cost pressure from inflation.
- The Studio continues to be a powerhouse with a superior hit rate, feeding into both traditional exhibition channels and streaming platforms.
- At direct-to-consumer (DTC), Hulu tops the industry with its impressive advertising model, while Disney+ exhibits industry-leading subscriber growth with nearly 130 million subscribers and expectations for 164 million by year end.
- Disney’s early success in transitioning its business to a digital platform will likely continue to award the stock a higher multiple as it increases conviction in its longer-term success and path to profitability.
We continue to find the stock attractive for the longer-term investor.
Price Target: $200 (reduced from $220)
Now onto the first glance impression from Goldman Sachs on Disney’s earnings results and prospects:
We have two key takeaways:
Disney’s fiscal Q1 2022 results beat our estimates and consensus estimates across most key financial metrics and core key performance indicators (KPIs) including:
- Revenue ($21.8 billion vs. consensus $20.8 billion)
- Adjusted operating income ($3.0 billion vs. consensus $1.8 billion)
- Disney+ net subscriber additions (11.8 million vs. consensus 7 million).
1) Disney+ regained more momentum than expected in with the net adds beat driven by each of its three key regions (U.S. and Canada, core International and Hotstar).
We see this result as de-risking DIS’s 2022 guidance for improved net adds in the second half vs. the first half, and may lessen investors’ concerns about DIS’s ability to hit its fiscal 2024 target of 230-260 million Disney+ subs vs. 130 million as of fiscal Q1 of 2022.
We have largely maintained our near-and longer-term direct-to-consumer (DTC) subscriber and financial forecasts.
2) The material beats to Parks revenue and operating income supports our outlook for structurally improved economics post-pandemic.
This is because DIS’s record results in this segment were achieved despite capacity constraints in the US and continued COVID-related pressures in International.
We have increased our near and longer-term forecasts for Parks revenue and operating income, as we expect that DIS will sustain per capita guest above pre-COVID levels driving higher post-pandemic margins.
Maintain Buy on Disney.
We see DIS’s results as a positive catalyst for the stock owing to better than expected operating trends (especially in DTC and Parks), improved visibility on DIS’s path to post-COVID fundamentals, and improved transparency into core KPIs.
We therefore maintain our Buy rating and 12-month price target of $205 (39% upside potential).