For a company exposed to many of the areas hardest hit by the pandemic, Walt Disney Co. has seen its stock hold up, largely thanks to the company’s progress in streaming video and optimism about an eventual reopening.
Now, with the company’s business slowly showing signs of improvement, including a surprising profit in Thursday afternoon’s earnings report, amid smaller-than-expected losses at theme parks and streaming, analysts are debating how this boost it must be reflected in the actions.
Shares DIS,
fell 0.8% on Friday’s midday trading session, reversing a previous gain of up to 1.5% on an intraday high of $ 193.85.
Bernstein’s Mark Shmulik titled his note to clients: “How many times can investors be paid for the same thing?” He argued that Disney shares, which rose 33% last year, already value streaming opportunities and an economic recovery, without accounting for the risk.
Shmulik said investors appear to be evaluating Disney +, the company’s streaming service, on more than 50% of Netflix Inc.’s NFLX,
company value, although Disney + has a third of the subscriber base and half of the average revenue per user (ARPU).
“Of course, the market is looking to the future,” he wrote. “But even if someone believes that Disney will ‘catch up’ with Netflix’s subs and ARPU, there is still significant time and risk that shareholders need to be compensated for (not to mention the negative free cash flow between now and then) . ”
Shmulik has a market performance rating for Disney shares. He raised his price target from $ 116 to $ 124, but the new target is still well below Disney’s recent price above $ 189.
MoffettNathanson analyst Michael Nathanson sees a mix of things at Disney, including troubled legacy television networks, a fast-growing streaming business and a bucket of parks and movie assets with the potential to recover from the COVID-19 crisis improvement. He wrote that Wall Street’s “extremely optimistic view” of the Disney + business took the stock to another historic record on Thursday, despite challenges to other business areas and mixed data points within streaming.
Although Nathanson was impressed to see that Disney showed incremental leverage in its direct-to-consumer business, with profits improving by $ 644 million and revenue growth of $ 1.5 billion, he also said that the market seems very focused on growth of Disney subscribers, at the expense of revenue trends. He estimates that Disney sees 45% to 50% of its incremental growth in subscribers to its Disney + Hotstar service in India, which generates much lower revenue per user than the regular Disney + service in the U.S.
“For a segment where investors use a multiple of price to revenue to value assets, we think that these variations in the mix and [revenue per user] it would have to return to focus at some point, ”he wrote, while reiterating a neutral rating for the shares and lowering his target price from $ 180 to $ 175.
Others were more optimistic about Disney’s history, including Macquarie analyst Tim Nollen, who highlighted Disney’s “decent” gains driven by smaller-than-expected losses in direct consumer and park businesses.
“We believe that the success of DTC and effective cost management has prepared Disney for a profit recovery, and a reopening of parks and cinemas should produce a cyclical recovery in 2H’21,” he wrote, while maintaining a superior performance rating. and a price target of $ 210 on the stock.
Bernie McTernan, an analyst at Rosenblatt Securities, wrote that while Disney “benefits from themes like staying home and reopening,” he was impressed by the progress seen in the park business over the past quarter. “The parks recovered faster than expected,” wrote McTernan, given the “high” demand for the holiday season.
“The risk points to the positive side of reaching earlier levels of profitability earlier than expected (FY’23)”, he wrote about the park, experience and product segment. McTernan sees “positive side in the long term if Disney can recover its pre-pandemic trajectory by generating a higher ROIC [return on invested capital] greater income management trends ”, including through a strategy that uses prices to help smooth consumer demand.
He has a buy rating for the stock and raised his target price from $ 210 to $ 220.
“Although the Covid-19 pandemic has affected legacy DIS businesses (theme parks, films, media networks), we see a potentially considerable increase in the release of pent-up demand due to the wide availability of vaccines,” analyst Aaron Siegel of CFRA said as he increased its $ 190 to $ 220 price target.
Disney shares have risen 37% in the past three months, like the Dow Jones Industrial Average DJIA,
increased by about 7%.