Disney Analyst Boosts Stock Price Target by $15 on Theme Parks Outlook

Walt Disney World in Orlando, Florida
GREGG NEWTON/Gregg Newton/AFP via Getty Images

Walt Disney World in Orlando, Florida

"Our parks forecast reflects a slower revenue recovery than current consensus estimates in fiscal year 2021-2023 and stronger long-term economic potential in fiscal year 2024 and beyond," writes Guggenheim's Michael Morris.

Guggenheim Securities analyst Michael Morris used a Wednesday report to raise his stock price target on the Walt Disney Co. by $15 to $200 as he boosted his theme parks unit financial forecast "to reflect slightly accelerated recovery trajectory versus prior."

Morris wrote that "our parks forecast reflects a slower revenue recovery than current consensus estimates in fiscal year 2021-2023 and stronger long-term economic potential in fiscal year 2024 and beyond."

The Wall Street expert highlighted that he values the Hollywood giant's direct-to-consumer business, including the Disney+ streaming service, at $132 per share, "consistent with the current Netflix valuation," its linear media businesses at around $28 a share, "consistent with peer trading multiples," and its theme parks and consumer products operations at about $80 per share. "Corporate expenses and the impact of inter-segment eliminations are applied to these parts to yield our $200 price target," Morris explained. He maintained his "buy" rating on the stock.

Diving deeper into the parks segment, he highlighted: "Over the next two years, we expect [staff] and guest safety to be a primary segment objective and anticipate meaningful investment in related protocols and health measures. However, we also believe that the company has used a period of slower guest traffic to revisit all elements of cost infrastructure with a focus on efficiency and effective use of technology. Given that the segment was expanding margins ... for several years prior to fiscal year 2020 driven by scale benefits, we believe our about 40 percent fiscal year 2025 segment target margin is not only achievable but may prove conservative."

In terms of theme parks visitors, Morris forecast "a more gradual attendance" recovery through fiscal year 2022 and higher long-term results. For example, "in the near term, our Walt Disney World attendance tracker indicates overall improved demand in fiscal first-quarter 2021 compared to the fourth quarter, consistent with expanded capacity availability during the quarter," the analyst said. "The data indicates incremental softness over the Christmas and New Year holidays, indicative of more limited out-of-town travel compared to historical periods."

Concluded Morris: "We expect local demand to remain the primary driver of the initial wave of attendance return, limiting pricing power and resort occupancy. However, over the longer term, we expect demand to drive total economics above fiscal year 2019 peak levels."

Disney's stock closed Tuesday's trading session at $175.99.