Disney Analyst Boosts Stock Price Target on "Strong" Streaming Position

The Walt Disney Studios
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The Walt Disney Studios

MoffettNathanson's Michael Nathanson keeps his "neutral" rating, but forecasts Disney+ to reach nearly 159 million subscribers worldwide in 2024, including 50 million in the U.S.

MoffettNathanson analyst Michael Nathanson in a Thursday report maintained his "neutral" rating on the stock of Walt Disney, but boosted his stock price target by $18, citing the Hollywood giant's "strong" position in streaming.

He is also bullish on the Disney+ streaming service's global subscriber outlook.

Nathanson took his stock price target to $136. "While we continue to expect economic pressures from COVID-19 to pressure earnings, we also acknowledge the strong direct-to-consumer position Disney holds," he wrote in the report entitled "Disney: A Lifeboat, But At What Price?"

He also noted that "we are decreasing our estimates further to incorporate all the latest headwinds in the 'core' business. And he highlighted: "It is not hard to imagine where the Walt Disney Co.'s stock price would be if they hadn’t undergone such an aggressive and dramatic transformation. Unlike all of their media peers, Disney has now successfully accomplished the difficult pivot of shifting its traditional businesses – and investor attention – towards a broad range of direct-to-consumer (DTC) endeavors. In short order, it is very clear Disney’s DTC businesses have meaningfully outperformed their initial subscriber expectations."

The analyst said forecast that Disney+ would grow its domestic subscribers to more than 50 million by 2024. "Yet, the real upside is outside the U.S., which is set to accelerate thanks to success at Disney+ Hotstar in India," he added. "We now forecast Disney+ to reach nearly [159] million subs worldwide by 2024."

Immediately after a Disney April 2019 investor day, he had forecast the streaming service to reach 70 million subscribers globally by 2024, including 25 million domestic subs.

Due to these streaming assets, Disney’s stock price "has decoupled from the usual historical pattern witnessed in prior economic downturns where negative earnings revisions and multiple contraction generate meaningful market under-performance," Nathanson argued. "This time around, the once in a generation, pandemic-driven closure of theme parks and movie theaters plus the acceleration in cord-cutting has been largely ignored as investors gravitate to a sum-of-the-parts valuation approach using Netflix’s price to sales as a valuation comparison for DTC."

Having downgraded his Disney stock rating to "neutral" in early May, the analyst said "we have been surprised by the warm embrace of growth investors in this name." And he concluded: "Clearly, Disney has successfully shifted its own narrative away from a traditional media company and now trades fully as a growth stock or more like the internet names."