Walt Disney Analyst Upgrades Stock on Streaming Success, Theme Parks Reopening

Walt Disney CEO Bob Chapek at the company’s investor day 2020
Disney

Walt Disney CEO Bob Chapek at the company’s investor day 2020

"Disney is positioned to achieve scale similar to industry leader Netflix … while its premium intellectual property creates pricing power and enables the company to spend less per sub on content," writes UBS expert John Hodulik.

UBS analyst John Hodulik upgraded his rating on the stock of the Walt Disney Co. from "neutral" to "buy" in a Friday report, lauding the Hollywood giant's streaming success and arguing its theme parks would benefit from the reopening of the economy after the coronavirus pandemic.

In his report entitled "Direct-to-consumer leader and reopening beneficiary," he also boosted his stock price target from $155 to $200.

Hodulik predicted "continued outperformance" in Disney's streaming business, writing: "Disney is positioned to achieve scale similar to industry leader Netflix with 340 million-plus global subs by '24 (versus UBS analyst Eric Sheridan's forecast of 316 million at Netflix), while its premium intellectual property creates pricing power and enables the company to spend less per sub on content, driving better economics over time."

He estimated that Disney, led by CEO Bob Chapek, would reach direct-to-consumer revenue of $43 billion in fiscal year 2024, "above our prior $27 billion and the Street's roughly $35 billion, with profitability in fiscal year 2023." And he said that this |will support a direct-to-consumer valuation similar to Netflix while (theme) parks become a beneficiary of vaccine availability and pent-up demand for leisure travel in the second half of 2021."

Arguing that the parks business "has bottomed and will see improved attendance/profitability as the vaccine becomes more widely distributed," Hodulik forecast that the unit would approach its historical performance and attendance by fiscal year 2022 "with higher margins long-term given operational improvements implemented during the pandemic."

The analyst also highlighted that UBS data "suggests foot traffic has improved in Florida, and we believe attendance has ramped to the self-imposed 35 percent ceiling."