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Disney Receives Upgrade from Needham Analyst, Raises Price Target

By Don Francis, Editor
February 9, 2024 7:47 AM UTC
Disney Receives Upgrade from Needham Analyst, Raises Price Target

Needham's Laura Martin upgraded their rating on Disney (NYSE: DIS) from Hold to Buy on 2024/02/08. The analyst also announced a $120 price target. Martin's upgrade comes on the heels of Disney's impressive Q1 2024 earnings report, which showcased strong growth in key areas of the company's business.

In her research note, Martin highlighted several factors that drove her decision to upgrade Disney. She pointed to the management's guidance of a "strong" 23% year-over-year growth in earnings per share (EPS) for FY 2024, driven by cost savings and the direct-to-consumer streaming business reaching breakeven by Q4 with "double-digit" margins at maturity. Additionally, Martin noted the expected 5.5M to 6M new subscribers from Charter in Q2, which further boosted her confidence in Disney's streaming business.

The analyst also cited several catalysts that contributed to her upgrade. These include the new ESPN Sports joint venture with Fox (FOXA) and Warner Bros Discovery, a $1.5B investment in Epic Games, incremental revenue from Parks Capex focused on "incremental capacity," and the exclusive rights to Taylor Swift concerts on Disney+. Furthermore, Martin highlighted the 50% higher dividend and the $3B share repurchases planned for FY 2024 as additional positive factors for Disney's outlook.

Disney's Q1 2024 earnings report showed impressive results. The company reported EPS of $1.22, surpassing the Zacks Consensus Estimate by 25.77% and Q1 2023's $0.99 by 23.2%. However, revenue of $23.55B slightly missed the Zacks Consensus Estimate by 0.58%, although it exceeded Q1 2023's $23.51B.

The number of Disney+ subscribers stood at 111.3M at the end of the quarter, slightly down from the previous quarter's 112.6M. Despite the slight decline, Martin remains optimistic about the streaming business, as management guided for 5.5M to 6M net new subscribers in Q2 2024, along with ongoing growth in average revenue per user (ARPU).

Disney's free cash flow for Q1 2024 was $886M, down from the previous quarter's $3.42B but significantly improved compared to Q1 2023's $(2.155B). The company also announced a new share repurchase program targeting $3B in repurchases for FY 2024, along with a quarterly dividend increase of 50%.

CEO Robert A. Iger expressed his satisfaction with Disney's performance in the past quarter, highlighting the company's progress in fortifying ESPN, building a profitable streaming business, revitalizing film studios, and driving growth in parks and experiences. Iger emphasized the potential for significant growth and increased shareholder returns as earnings and free cash flow continue to improve.

In addition to Martin's upgrade, several other analysts also revised their ratings and price targets for Disney on 2024/02/08. Deutsche Bank's Bryan Kraft raised their price target by 7.8% to $125 and maintained their Strong Buy rating. Barclays' Kannan Venkateshwar increased their price target by 8% to $95 while maintaining a Hold rating. Macquarie's Tim Nollen raised their price target by 10.6% to $104 and also maintained a Hold rating.

Overall, 87.5% of top-rated analysts currently rate Disney as either a Strong Buy or Buy, with the remaining 12.5% considering it a Hold. No analysts recommend selling the stock. The consensus forecast among analysts is that Disney's upcoming year will deliver earnings per share (EPS) of $2.56, representing a significant 56.2% increase on a year-over-year basis.

Since Disney's latest quarterly report on 2024/02/06, the stock price has risen by 11.3%. However, when looking at the performance over the past year, the stock is down 1.1%. During the same period, Disney has underperformed the S&P 500, which has declined by 21.4%.

Laura Martin, the Needham analyst who upgraded Disney's rating, is highly regarded among Wall Street analysts. According to WallStreetZen, Martin ranks in the top 2% out of 4,469 analysts, with an average return of 10.2% and a win rate of 54.9%. Her expertise lies in the Industrials and Communication Services sectors, among others.

Disney, founded in 1923, is a renowned mass media and entertainment conglomerate. The company is best known for its film studio, Walt Disney Studios, but also owns and operates the ABC broadcast network, various cable television networks, publishing, merchandising, music, and theater divisions. Disney has also ventured into the direct-to-consumer streaming market with services like Disney+, Star+, ESPN+, and Hulu. The company's headquarters are located in Burbank, CA.

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