Walt Disney Analysts Bullish As Disney+ Gains Ground On Netflix

Walt Disney Co DIS shares gained 2.4% on Friday after the company reported a better-than-expected earnings loss in the third quarter and said its Disney+ streaming service now has more than 73 million paid subscribers.

Disney reported an adjusted third-quarter EPS loss of 20 cents, beating Wall Street estimates of a 71-cent loss. In addition, Disney reported $14.71 billion in revenue, ahead of analyst expectations of $14.2 billion.

By combining its 73.7 million Disney+ subscribers, its 36.6 million Hulu subscribers and its 10.3 million ESPN+ subscribers, Disney now has roughly 120 million total streaming subscribers compared to about 195 million subscribers for Netflix, Inc. NFLX.

Disney also announced it's suspending its semi-annual dividend as a defensive measure due to the pandemic and as part of its plan to prioritize investment in direct-to-consumer businesses.

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Streaming Strength Offsetting Pandemic Weakness: Morgan Stanley analyst Benjamin Swinburne said Disney’s theme park and film businesses continue to weigh down its overall numbers.

“The net impact from the COVID environment on these results is probably a positive, with stay-at-home measures driving streaming usage across the industry,” Swinburne wrote in a note.

Bank of America analyst Jessica Reif Ehrlich said Disney is focusing on managing its costs and beefing up its direct-to-consumer business.

“Despite near term COVID pressures and key mgmt. changes—creating an element of uncertainty as the co. transitions, we believe DIS is well positioned to grow stronger from a faster Disney+ rollout, launch of a Star branded intl. entertainment offering and LT theme park margin potential,” Ehrlich wrote.

Tigress Financial analyst Ivan Feinseth believes Disney shares still have significant upside from current levels.

“Disney+ has also hit 73.7 million subscribers, which was the midpoint of its 60 to 90 million five year projection on the anniversary of its November 12th, 2019 launch date,” Feinseth wrote.

Economic Recovery Play: CFRA analyst Tuna Amobi said Disney will likely be a great post-pandemic recovery play.

“While the near-term visibility remains somewhat limited by the Covid-19 surge, DIS is one of the likely prime beneficiaries of further reopening of the global economy, with improved near-term prospects of vaccine development,” Amobi wrote.

Rosenblatt Securities analyst Bernie McTernan said Disney’s business appears to be on stable footing ahead of its upcoming Investor Day event on Dec. 10.

“We continue to believe the event will be a catalyst for shares as the company is hitting the accelerator on streaming and embracing direct-to-consumer which should continue to narrow the gap in global streaming subs with NFLX,” McTernan wrote.

Needham analyst Laura Martin said Disney investors shouldn’t overlook the company’s dividend suspension.

“DIS cut its semi-annual cash dividend, payable in Jan 2021, which may force certain dividend-focused investors to sell now, before DIS has demand from growth investors, suggesting a ST supply/demand imbalance for DIS shares,” Martin wrote.

DIS Ratings And Price Targets:

• Morgan Stanley has an Overweight rating and $160 target.
• Bank of America has a Buy rating and $166 target.
• CFRA has a Buy rating and $160 target.
• Rosenblatt has a Buy rating and $155 target.
• Needham has a Hold rating.

Disney's stock traded around $138.65 at publication time.