Walt Disney Shares Hit Fresh Record High on Surprise Profit; Target Price $210

Walt Disney, a family entertainment company, reported better-than-expected earnings in the first fiscal quarter, largely driven by a fast-growing streaming business with Disney Plus reaching roughly 95 million subscribers, helping its shares hit fresh all-time highs on Thursday.

The world’s leading producers and providers of entertainment and information said its diluted EPS for the quarter decreased by 79% to $0.32 from $1.53 in the prior-year quarter. However, that was way better than the Wall Street consensus estimates of a loss of -0.34 cents per share.

Although Disney’s revenue declined to $16.25 billion from $20.88 billion a year earlier, it was higher than the market expectations of $15.93 billion.

Results in the quarter ended January 2, 2021 were adversely impacted by the novel coronavirus. The most significant impact was at the Disney Parks, Experiences and Products segment where since late in the second quarter of fiscal 2020, our parks and resorts have been closed or operating at significantly reduced capacity and our cruise ship sailings have been suspended, the company said.

“In a little over a year after launching, the service has exceeded the top end of the company’s original fiscal 2024 guidance of 60-90 million subscribers. The pandemic once again hammered the parks and theatrical businesses as revenue collapsed by 73% and 98%, respectively, versus a year ago. We are maintaining our wide moat and plan to modestly increase our $140 fair value estimate,” Neil Macker, senior equity analyst at Morningstar.

“While we expect these hurdles to remain in place for the segment for at least the first half of calendar 2021, we are encouraged by relative demand from consumers and the continued growth in bookings. The cost reduction plans have largely worked as Florida, Shanghai, Hong Kong, and Paris all generated enough revenue to cover the variable costs of being open despite capacity constraints.”

Walt Disney shares, which surged over 25% in 2020, hit a fresh high by rising 1.2% to $193.2 in extended trading on Thursday.

Walt Disney Stock Price Forecast

Twenty-three analysts who offered stock ratings for Walt Disney in the last three months forecast the average price in 12 months of $190.95 with a high forecast of $210.00 and a low forecast of $160.00.

The average price target represents a 0.02% increase from the last price of $190.91. From those 23 analysts, 19 rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $200 with a high of $145 under a bull scenario and $130 under the worst-case scenario. The firm currently has an “Overweight” rating on the family entertainment company’s stock.

Several other analysts have also recently commented on the stock. JP Morgan raised the target price to $220 from $210. Evercore ISI upped the target price to $210 from $200. Cowen and Company raised the price target to $147 from $115. Smith Barney Citigroup lifted their price target to $175 from $150.

Analyst Comments

“Disney‘s Parks segment rebounded faster than expected. While the road to recovery remains long and uncertain, it appears the worst is behind it and underlying demand/operating leverage encouraging. Disney‘s DTC business also beat expectations, with Disney Plus likely to pass 100mm subs any day,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

“Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long term content monetization opportunities. During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak U.S. Parks revenues in FY23.”

Upside and Downside Risks

Risks to Upside: Accelerated OTT adoption drives higher DTC revenues and faster profitability. Distribution renewals lead to favourable pricing acceleration. Film success drives strong franchise monetization – highlighted by Morgan Stanley.

Risks to Downside: Macro econ weakness. Acceleration in pay-TV cord-cutting remains a risk, given DIS exposure to pay-TV revenues. Franchise fatigue could pressure box office, lower Consumer Products monetization.

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