The Magic Kingdom is getting its magic back, and Wall Street is elated. Disney’s latest quarterly earnings report is in, along with color from CEO Bob Iger and his team on a new sports streaming joint venture with Fox and Warner Bros. Discovery, plus news of a $1.5 billion investment in Fortnite parent Epic Games and the fall 2025 launch date for an ESPN stand-alone streaming service.
So, Wall Street analysts had much to digest overnight, but most came away with optimism and increased stock price targets for Disney. In pre-market trading on Thursday, Disney shares were up more than 7 percent above $106.
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The upbeat reaction will help Iger as he is facing a proxy fight in early April with activist investors Nelson Peltz, whose Trian Partners is a big Disney investor, and Jason Aintabi’s Blackwells.
Guggenheim Securities analyst Michael Morris lauded a “big quarter” for Disney, reiterated his “buy” rating and boosted his stock price target by $10 to $125, based on higher financial estimates. “Our buy rating reflects anticipated improvement from intense content quality focus, moving past Hulu-ownership complications to maximize asset value, right-sizing spending, and giving more consumers more opportunity to pay for ESPN via a direct distribution tier,” he explained.
Morris also described the latest figures and announcements as the latest steps in Disney’s narrative. “Fiscal first-quarter results indicated further progress in CEO Bob Iger’s ‘building’ phase, headlined by partnership details (sports joint venture), a new investment (Epic Games) and official timing of ESPN streaming standalone (fall 2025),” he wrote.
Wells Fargo analyst Steven Cahall boosted his stock price target by $13 to $128 while maintaining his “overweight” rating on Disney in a report with the punny headline “Epic Quarter (Bob’s Version).”
“Disney is officially back on offense with the profit and loss humming and confident guidance,” he wrote. “Direct-to-consumer + sports + experiences = long-term growth.” Cahall’s key takeaway: “Content is the last piece of the bull case puzzle.” With cost savings delivered and “sports/experiences steady, we think management attention remains on creative,” explained the expert. “The last thing investors want to see to solidify support is content hits. Second-half calendar year ’24 includes Deadpool 3, Moana 2 and Mufasa as opportunities.”
Sanford C. Bernstein analyst Laurent Yoon stuck to his “outperform” rating on Disney while raising his stock price target by $12 to $115 in a report entitled “Good setup. Let’s go.”
He kicked it off with a look at what the latest set of results and announcements means for Disney’s battle against activist investors. “Can you hear the sigh of relief? While Blackwell and Trian are unlikely to back down (yet), Iger & Co. have just strengthened their position ahead of the April proxy vote,” Yoon argued. “At this rate, Iger & Co. wins and, frankly, there are no losers in here in our view – Blackwell and Trian win too.”
After all, “Disney beat on every metric (except for linear, but who cares) and painted a positive 2024,” the expert emphasized. “We can talk about dividends, buybacks, free cash flow and earnings per share, but the metric that really matters is direct-to-consumer (DTC) profitability.” With losses there narrowing, he sees the company turning a profit earlier than expected. “Management is still guiding to DTC profitability in the fourth quarter of fiscal year 2024 but, frankly, who believes that anymore?” he wrote. “Fiscal year ’24 third quarter is the new goalpost for investors, and perhaps the second quarter for some.”
Over the longer term, investors will focus on streaming earnings before interest and taxes (EBIT). “The market’s expectation (hope?) is to achieve ’20 percent’ over the next five years, simply using Netflix as a proxy,” Yoon argued. “For the first time, Disney mentioned a ‘double-digit margins’ target for the DTC business without specifying the timeline (hey, it’s a step).” The analyst sees the company having “some work cut out” to get to 20 percent, but lauded that the “building blocks are in place (subs and average revenue per user growth, password-sharing crackdown, AVOD growth, cost controls) with a ‘sense of urgency’ to achieve these targets.”
Yoon is bullish but also cautioned: “Disney is not out of the woods. It needs to actively manage the linear decline and set up sports for success. While the sports joint venture is a step in the right direction to migrate cord-cutting customers, it could be a double-edged sword. Inevitably, it could accelerate linear decline, but perhaps the legacy media brethren do not have too many options to work with.”
Meanwhile, MoffettNathanson analyst Michael Nathanson maintained his “buy” rating on Disney in a Thursday report entitled “A Sense of Urgency” but increased his stock price target by $5 to $120.
“It certainly feels like there are a massive number of changes in streaming to come,” he highlighted. And he noted a comment by new Disney CFO Hugh Johnston about “a sense of urgency” when it comes to streaming profitability as “one of the single most impactful statements on a call filled with key highlights.”
Concluded Nathanson: “With a market cap that is larger than the entirety of Disney, Netflix has been rightly crowned the winner of the streaming wars with what appears to be a winner-take-all positioning, aka the biggest tech giants. No other company – not even Disney – has made the case yet they have the potential to build a large, profitable business. There appears to be a new urgency to spend more time focused on that opportunity.”
TD Cowen analyst Doug Creutz, who has a “market perform” rating and $94 stock price target on Disney, has his financial model under review after the earnings and news updates, while highlighting the uphill battle that Iger’s critics will face. “We Would Not Want to Be Making the Activist Case After Those Fireworks,” he summarized his takeaways in the headline of his report.
Disney’s results “had a lot of everything: a quarterly beat, surprise strong fiscal-year guidance, positive new content announcements, an intriguing partnership with Epic, and a share buyback – all of this on top of the streaming sports joint venture news from Tuesday night,” the expert highlighted.
Creutz had in a previous report lamented that Disney’s animation studios has struggled in recent years with “a bad pipeline mix of new and established franchise content” and that “why we are getting a live-action [Moana] remake before an animated Moana 2 is a question for the ages.” So he was happy to hear Disney unveil that a Moana sequel would hit theaters in November and “that over the next several years the company would generally be re-focusing on franchise/sequel content.” Noted Creutz: “There’s nothing like instant gratification.”
The analyst also dissected the Epic Games investment. “Given Epic’s trailer listing the experience as coming ‘soon(ish),’ we suspect it could arrive as soon as late 2024, and very likely by 2025,” he wrote. “This approach is consistent with Disney’s strategy of licensing its IP to top game development companies rather than trying to do it in-house (or spending lots of money on gaming M&A).”
Creutz even gave a shoutout to new Disney CFO Hugh Johnston, a former PepsiCo top executive, suggesting that he was “doubtless a factor in [Disney’s] expanded guidance philosophy.” He explained what he meant this way: “Management gave their first annual earnings per share guidance since . . . well, a very long time ago,” adding: “Management also gave color around fiscal second-quarter segment expectations.”
Bernstein’s Yoon also included a tip of the hat to Johnston in his report, following up his mention of Disney’s upbeat 2024 outlook with a little “(Thank Hugh!).”
Even beyond Wall Street, experts took note of the results. Third Bridge analyst Jamie Lumley focused on the Hollywood giant’s streaming trends. “Disney has not made streaming profitable, but the company is getting close. The direct-to-consumer loss of $138 million is an improvement from the nearly $1 billion loss last year, showing the impact of Disney’s ongoing cost-cutting measures,” he wrote, but also emphasized: “The question that remains is whether this comes at the expense of subscriber growth, with Disney+ core subscribers declining by 1.3 million.”
With all industry eyes this week on Disney’s sports streaming joint venture with Warner Bros. Discovery and Fox, Lumley also addressed it. “This initiative could bring in a major audience for Disney as it reaches households outside the pay-TV ecosystem while its linear channels continue to see declining viewership,” he wrote. “However, it is unclear how this launch will impact properties like Hulu + Live TV or the ESPN flagship streaming service that Disney.”
Brian Wieser, principal at Wall Street insights provider Madison and Wall, also shared his takeaways on the sports streaming venture and Disney’s discussion of it. He reiterated that the new service will target people who have never signed up for traditional pay TV, so-called cord-nevers, and those who have left it, or cord-cutters. “Of course, it seems highly likely that if an offering were appealing to consumers, it would almost certainly accelerate cord-cutting decisionmaking among many consumers who were only continuing with their traditional pay TV service in order to access the sports programming that will be included on the new service,” the analyst highlighted.
And he noted “little commentary about their existing pay TV distributors’ perspectives on its initiatives,” including Disney’s offering Disney+ to Charter Communications subscribers based on a recent carriage deal. “Presumably, it’s possible that the new sports venture will find similar ways to incent existing distributors to support it, although it’s difficult to imagine how this will occur without worsening traditional TV network economics more rapidly than might otherwise have been the case,” Wieser concluded.
Wieser’s takeaway: “I continue to believe as I did when the announcement of Disney+ in 2018 kick-started the current era of streaming that the consequences are probably more negative economically in the mid-term than some of the willful optimism projected by companies in the sector. This is because of the higher costs to provide these services in a competitive manner and because the utility of television as a vehicle to support brand-focused advertising worsens as a consequence of this transition.”
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