One of the nation’s foremost investment houses with a focus on media, entertainment and technology companies has lowered its price target on The Walt Disney Company. But don’t think for a minute that direct-to-consumer content is underperforming for the owner of ABC, ESPN+, Hulu and Disney+.
Rather, it is the company’s theme parks unit that has MoffettNathanson Senior Analyst Robert Fishman wary of the company’s coming fiscal quarters.
Truth be told, if that’s the only thing of concern for Fishman, that’s a remarkable achievement. Unlike peer Paramount Global, Disney has largely entered the second half of the 2024 calendar year free of earlier concerns including fending off activist shareholders, improving direct-to-consumer profitability, the resolution of Florida theme parks litigation and ending its public spat with Gov. Ron DeSantis, and improving its theatrical results thanks to “Inside Out 2” and its massive box office success.
That’s not to say Fishman isn’t aware of other potential worries for Disney, such as the outcome of the Comcast-Disney Hulu arbitration, the future of ESPN’s flagship direct-to-consumer launch, and the need for a successor to Bob Iger as chief executive. Oh, and there’s a National Basketball Association renewal negotiation still at play.
“Despite many of these catalysts, for better or worse after a tough calendar 2Q, Disney shares are now trading 6% below the S&P 500 for the first half of the year,” Fishman says.
And, truth be told, the theme parks unit “has remained very resilient throughout the year, as it has throughout the past few years since exiting the pandemic.” But visibility remains cloudy, he believes.
With Disney stock at $97.80 in early trading on Tuesday (7/2), Fishman knows that shares have recently underperformed as “near-term questions around the trajectory of Parks mount.”
Despite that, however, MoffettNathanson continues to believe that the future of DTC will be the biggest driver of Disney’s stock performance in the next six to 12 months as investors get more clarity around the different paths for their streaming services.
As such, MoffettNathanson is maintaining its “Buy” rating on “DIS,” but reducing its target price to $125, from $130. This is based on a reduced 22x P/E multiple (-1x lower) on its FY 2025 EPS (ex-PPA) estimates “due to greater parks uncertainty.”
Meanwhile, the strength of D2C for Disney is telling, with fiscal Q3 2024 estimates for the unit coming in at $5.716 billion, rising from $5.045 billion. By comparison, Linear Networks revenue is projected to dip to $2.547 billion from $2.872 billion as NBCUniversal’s coverage of the Paris Summer Olympic Games takes core ad dollars away from competitors in the space, with political dollars only offsetting that shift.
