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Morgan Stanley analyst Benjamin Swinburne cut the price target on Walt Disney (NYSE:DIS) to $125 per share from $170 in a note Thursday, reiterating an Overweight rating.
The analyst pointed out two key factors on why they remain positive on the stock, including an attractive risk-reward, “even with some macro pressures,” and its parks and experiences business. However, Swinburne lowered Disney+ estimates but feels the content is undervalued.
“We layer in the impact of a more difficult macro backdrop to our forecast for advertising and Parks revenues. Our new base case moves to $6 of EPS in FY24 (vs. $6.70 consensus) and $4 in our recession bear case. We lower our price target to $125, representing 30% upside, with 20-25% downside to our recession bear case, and over 65% upside in our no recession/streaming success bull case,” wrote the analyst. “Over many economic cycles, the Parks business has always come back after a downturn. In fact, the pandemic recession and recovery has seen the US Parks revenues grow at a +4-5% CAGR from FY19 to FY22, 3-4x faster than the prior cycle.”
However, speaking on Disney’s streaming service, Disney+, the analyst explained they lowered Disney Plus estimates to reflect lost Indian Premier League (an Indian professional cricket league) streaming rights and the risk of a weaker consumer.
“We now forecast 220mm in FY24, 150mm core, and 300mm+ total DTC,” continued Swinburne. “The streaming transition of Disney’s entertainment content has been highly accretive to revenues but highly dilutive to earnings. We believe it can recover and ultimately surpass prior peak earnings over time, but more importantly that its content is undervalued at current share prices.”
