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Guggenheim analyst Michael Morris raised his stock price target on the Walt Disney Co. by $5 to $215, citing the rebound in the theme parks business as it continues to normalize after coronavirus pandemic lockdowns.
“We have refined our parks model to reflect our view of a faster pace of reopening trends and stronger consumer spending than previously forecast,” the analyst explained in his report entitled “Consumer Trends Point to Steeper Parks Recovery Trajectory, Higher Spending Levels.” He maintained his “buy” rating on Disney shares.
Morris noted that the state of California has allowed Disneyland to return to full capacity as of June 15, with Disneyland Paris reopening Thursday. “While management has guided to low-double-digit attendance growth over the next several months, we anticipate that strong demand and a high level of execution will support a steep recovery rate, with fiscal 2022 revenue matching 2019 levels,” Morris argued. “Our updated analysis draws from the healthy return of broader domestic restaurant demand, tempered by the longer expected booking lead time for vacation windows, particularly at Walt Disney World.”
The Guggenheim analyst also highlighted that Disney management has noted that the company “was able to use the downtime during COVID closures to institute park-focused renovations and upgrades, which have supported growth in per-capita spending (up double digits in the fiscal second quarter) and expanded capacity.”
But Morris also suggested that theme parks unit margins could rebound at a slower rate than he previously forecast “as the company continues to invest in new attractions.” The result: “Our updated fiscal year 2022 revenue forecast of $26.8 billion is ahead of consensus expectations ($25.3 billion), while our operating income before depreciation and amortization forecast is roughly in line at $8.7 billion. However, we expect pricing power and strong demand will drive margins over the long term, reaching 36.9 percent in fiscal year 2023 compared to 35.9 percent at its pre-COVID peak in fiscal year 2019.”
Morris said that he values Disney’s theme parks and consumer products business at around $83 per share, compared with the streaming business at roughly $81 a share.
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