'See Reason For Owning Disney': Analysts Assess DTC Growth And PENN Sports Betting Deal

Media giant The Walt Disney Company DIS reported third quarter financial results after market close Wednesday. The company missed revenue estimates and beat earnings per share estimates from analysts in the quarter.

Here's a look at what analysts are saying after the results.

The Disney Analysts: Macquarie analyst Tim Nollen has a Neutral rating and a price target of $94.

Rosenblatt analyst Barton Crockett has a Buy rating and lowers the price target from $111 to $102.

Needham analyst Laura Martin has a Hold rating and no price target.

Morgan Stanley analyst Benjamin Swinburne has an Overweight rating and a price target of $105.

Macquarie on Disney: Results for Disney were mixed, but there is a lot going on for the future, Nollen said.

“DTC was mixed: core Disney+ subs were only +800k while D+/Hotstar dropped 12.5m, but operating losses improved $150m q/1 to -$512 million vs guidance implying -$750m,” Nollen said.

The analyst said several initiatives are coming from Disney to boost the direct-to-consumer segment, including ad tiers rolled out in Canada in November, price increases on ad-free plans, password-sharing crackdowns and new bundles set to be introduced.

Rosenblatt on Disney: A partnership between Disney and PENN Entertainment PENN could be “just a taste of what could come” for the media giant, according to Crockett.

“We retain a Buy rating and see reason for owning Disney,” Crockett said.

The analyst pointed out that the company's shift in strategic focus has left ESPN flagging, while identifying other segments as potential growth drivers for the company in the future.

“Disney’s deal to enter sports betting via a deal with Penn Entertainment, which will pay $1.5B in fees over 10 years, is interesting mainly as a way to spruce up ESPN betting capabilities, which appeals to a younger generation.”

Crockett said Disney CEO Bob Iger made a point of discussing a strategic partner to help with distribution, content and technology, which could signal interest from Apple Inc AAPL or Alphabet Inc GOOGGOOGL.

The analyst said guidance from the company “seems beatable” if it hits its goals for direct-to-consumer.

“This could be the low watermark, with upside strategically and versus cautious guidance.”

Related Link: Trading Strategies For Disney Stock After Q3 Earnings 

Needham on Disney: Lower content spending for Disney, in part related to the Hollywood strike, could be a positive for the company, Martin acknowledged.

“This FCF will repay DIS’s debt faster, and/or reinstate the dividend. Both are positives for DIS shareholders, in our view,” Martin said.

Martin said Disney is focused on driving higher direct-to-consumer margins, with another price increase coming for Disney+ to drive subscriptions into the ad-supported tier, “which has higher economics.”

The analyst said movie box office performance from Disney has been weak and is looking for more in the second half of the year. Martin added that customer acquisition costs could fall with strong original blockbuster movies.

“Our Hold rating on DIS is based on our belief that consensus estimates for DIS are too high owing to DTC losses and another year of weak earnings from linear TV and box office.”

Martin sees Disney as a takeover target in the future due to its strong position in the streaming sector, and having a library of hit film and television franchises that is “best in class.”

“We believe that high quality content libraries with hit film and TV franchises will be revalued upward as competing new technologies scale and becomes more widely adopted over time. No company has better fan-driven IP than DIS, in our view.”

Morgan Stanley on Disney: Disney is not sitting still moving forward, Swinburne said.

“Disney continues to benefit from the profitable growth of its Parks segment, which we see driving consolidated earnings and FCF growth for years to come,” Swinburne said.

The analyst said the company is working to continue growth for its direct-to-consumer business and expects to report higher Disney+ net adds in the fourth quarter than what it has reported in recent quarters.

“We look to new segment reporting including standalone ESPN financials for the first time later this Fall and Disney’s upcoming investor day in mid-September as upcoming catalysts.”

DIS Price Action: Disney shares are up 3% to $90.18 at the time of publication Thursday, versus a 52-week trading range of $84.08 to $126.48

Read Next: Disney Box Office Troubles: Will 2023 Be The First Year Since 2014 To Miss This Major Milestone? 

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