Disney Analysts Boost Stock Price Targets as Streaming "Is What Matters"

Disney CEO Bob Chapek
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Disney CEO Bob Chapek

"Our direct-to-consumer value is now $100 as Disney has shifted faster than expected," says another Wall Street observer.

Streaming service Disney+ again was one of the bright spots when the Walt Disney Co. reported its latest quarterly results after the Thursday market close, with Wall Street analysts giving the Hollywood giant credit for that along with better-than-expected financials in other units.

Several on Friday raised their stock price targets on Disney, with some increasing their valuation of the direct-to-consumer (DTC) business. But Street experts expressed differing view on how to best value the streaming business, including Disney+, which in just 11 months has managed to reach 73.7 million subscribers, handily exceeding a target the company hadn't expected to hit until 2024.

Macquarie analyst Tim Nollen, who has an "outperform" rating on the stock, summarized many Wall Street observers' takeaways from Disney's latest financial update in a report entitled "DTC is what matters." He cut his earnings estimates for the new fiscal year "on extended downturns expected in parks and studio, as well as higher expected investment costs in DTC." But he raised his target price on Disney's stock from $140 to $160, ascribing "a higher relative" value to the fast-growing direct-to-consumer businesses.

BMO Capital Markets analyst Dan Salmon, who has an "outperform" rating on Disney's stock, on Friday similarly boosted his price target by $15 to $165 in a report entitled "Raising Both Direct-to-Consumer and Core Valuations Together for First Time Since COVID."

"We knew it was early when we made Disney [our] top pick as COVID first emerged, but our thesis is playing out," he wrote. "Management delivered on the promise for parks re-openings to be incremental margin positive, while streaming subscriber trends remain strong, with Disney+ again sailing past our estimate (73.7 million versus our 62.5 million). Our direct-to-consumer value is now $100 as Disney has shifted faster than expected."

That is up from $98 previously, "based on higher out year free cash flow estimates, which is supported by higher subscriber estimates across all DTC businesses," he explained.

And Salmon had this advice: "18 trading days until the December 10th investor day: we recommend building positions ahead [of] an event that will likely lay out the path to one day take that value even higher." He now forecasts Disney+ to reach 137.3 million subscribers in 2024, up from his previous estimate of 119.4 million.

But the analyst also took his value estimate for Disney's "core" business, mostly theme parks and media networks, up from $52 to $65, arriving at "$13 more value."

Meanwhile, Guggenheim analyst Michael Morris boosted his Disney stock price target by $25 to $165 and maintained his "buy" rating, highlighting that the latest quarterly results "exceeded our/consensus expectations driven by outperformance at the media networks, parks, and direct-to-consumer segments."

He also touted the "strong growth" across the firm's streaming portfolio, including "over 120 million combined paid subs including ESPN+ and Hulu," explaining: "We value the company’s direct-to-consumer businesses at five times estimated 2024 sales, with our multiple on the company’s SVOD products consistent with our valuation approach for Netflix."

MoffettNathanson's Michael Nathanson, who has a "neutral" rating on Disney shares with a price target that he raised by $3 to $139, shared a different view. "Even the most bearish Disney analyst has to admit that the ramp of Disney+ from zero to 73.7 million subscribers in less than a year is a magnificent and thesis-changing accomplishment," he wrote. "As long-time believers in the magical qualities of Disney’s brands, content and execution, the launch of this service exceeded our wildest imaginations."

But he also emphasized: "We are unwilling to take the leap of faith on direct-to-consumer valuation that the market is so willing to make because we are uncertain that the sum of Disney’s DTC businesses should be treated using Netflix’s multiples, which we still think is overvalued." Concluded Nathanson: "Even if we try to employ a sum-of-the-parts multiple to capture the many moving parts of the story, we still have trouble seeing the risk-reward at this price at this point."

Cowen's Doug Creutz reiterated his "market perform" rating, but boosted his price target for Disney's stock by $12 to $115.

"Disney+ is off to a very strong start, which we believe is the key variable governing stock performance," he wrote. But he noted that management forecast streaming operating income to decline by about $100 million in the current quarter "driven by continued investment in Disney+, partially offset by improved results at both ESPN+ and Hulu."

Concluded Creutz: "DTC sub trends remain positive, though fiscal first-quarter guidance suggests continued significant ramp in spending."

In early Friday trading, Disney's stock was up 3.3 percent at $139.95.

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