Analysts unveil new Disney price targets as shares soar on earnings

Disney wants investors to know its new strategy is working. It might not be.

Feb 8, 2024 - 20:30

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Analysts unveil new Disney price targets as shares soar on earnings

Walt Disney (DIS) shares surged in early Thursday trading after a dizzying series of updates and announcements from the media and entertainment giant followed a solid first-quarter-earnings increase.

Disney, which is trying to fend off two separate challenges from activist investors seeking significant changes under CEO Bob Iger, delivered profit largely powered by aggressive cost-cutting and an outsized gain from its parks and cruise ships division.

That largely offset ongoing losses in Disney's streaming business, as well as its newly created sports unit. But it may not be enough to convince investors that Iger, or his successor, can generate consistent profit growth from the group's sprawling and complex empire.

In a nod to the pending activist battle, which will see Trian Fund Management as well as Blackwells Capital vie for seats on the board next month, Disney plans to boost its semiannual dividend by around 50%, increase its share-repurchase effort to around $3 billion and invest $1.5 billion in Fortnite maker Epic Games.

Those moves followed the surprise unveiling of its new sports streaming venture earlier this week. The venture will include Fox Corp. (FOXA) and Warner Bros. Discovery (WBD) .

For good measure, the group also tossed in that music megastar Taylor Swift's "Era's Tour" film, one of the highest grossing on record, will be streamed exclusively on Disney+.

Disney CEO Iger: 'Our strategy is working'

"What's clear is that the important transformation we undertook last year is bearing fruit," Iger told investors on a conference call late Wednesday. "And looking at our results this quarter, we can say with confidence, our strategy is working."

"Disney's experiences business generated all-time records in revenue, operating income, and operating margin," he added. "And we are on track to meet or exceed $7.5 billion in cost savings as we continue to look for further efficiency opportunities across the company."

*Disney shares have lagged the broader market for years, and Wall Street is split as to whether they're ready for a sustained advance.*

The stock is still down more than 11% over the past year, however, and absent the dividend and share-repurchase boost, as well as the $7.5 billion cost-cutting target in place for fiscal 2024, Iger still hasn't convinced investors he can drive consistent profit growth.

Wall Street is also divided on the group's near-term outlook, which includes a rare 2024 profit forecast of around $4.60 per share, an estimated addition of around 6 million new subscribers over the three months ending in March, and a vow to make the streaming division profitable by the end of the year.

Is the Disney Magic really back? Analysts are split

Needham analyst Laura Martin said that "finally, the magic's back" in Disney's long-running turnaround Thursday, lifting her rating on the group to buy from hold with a $120 price target.

KeyBanc Capital Markets analyst Brandon Nispel, however, held his sector-weight rating in place following last night's earnings. He noted that "the stock is likely to trade higher as estimates may be done moving lower, though we are not of the view that any of Disney's major issues are fixed."

Goldman Sachs analyst Brett Feldman lowered his price target on Disney by $5 to $120 a share, affirming a buy rating, while Wells Fargo analyst Steven Cahall lifted his price target by $13 to $128 a share.

Star Wars: Galaxy's Edge at Disney's Hollywood Studios.
Image source: Daniel Kline/TheStreet

Deutsche Bank also lifted its Disney price target, taking it to $125 a share, but noted the challenges one of the group's new ventures is likely to face.

The new sports-bundle product is "designed to appeal mostly to broadband-only cord-never customers, who are very interested in sports programming," Deutsche Bank wrote. "We don't see it generating mass appeal among linear pay-TV subscribers. ... [We] think the price will have to be at least $40 per month, but more likely higher, probably closer to $50."

That may put it at a level that would impede its overall growth prospects, given that Disney lost 1.3 million subscribers last quarter following a series of autumn price hikes.

MoffettNathanson analyst Michael Nathanson, who bumped his Disney rating to buy from hold with a $120 price target, noted that rival Netflix (NFLX) has squeezed around $4.5 billion more in profits from its streaming business than Disney at the same point in both groups' revenue and subscriber-growth paths.

Disney battle with activist investors looms

Disney's overall bottom line rose 23% to $1.22 a share, well ahead of Wall Street forecasts, while revenue ticked up 0.2% to $23.5 billion, just shy of the consensus estimate of $23.6 billion.

Operating profit surged 27% to $3.88 billion, with more than half that tally ($2.08 billion) coming from Disney's Experiences division, which includes its theme parks and cruises.

Entertainment posted operating profit of $1.24 billion, but the direct-to-consumer unit lost $138 million, and Sports lost $103 million even as revenue rose 4% to $4.84 billion.

All told, the quarterly performance is likely to boost the stock's near-term gains, but next month's board-seat battle still looms.

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"If you look at the results that we just announced … that is the result of a team that is motivated, that is focused, and now all of us are very optimistic,” Iger told CNBC last night.

“The last thing that we need right now is to be distracted in terms of our energy by an activist or activists that, frankly, have a completely different agenda and don’t understand our company, its assets, even the essence of the Disney brand.”

It might not be what the group needs, but the activists aren't going away.

“It’s déjà vu all over again," Trian said in a statement following last night's earnings. :We saw this movie last year and we didn’t like the ending.”

Disney shares were last marked 8% higher in premarket trading to indicate an opening bell price of $107.09, a move that would extend the stock's six-month gain to around 21%.

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