Disney Analysts Tackle Theme Park Weakness, Streaming Profits: 'The Upside In The Entertainment Units More Than Offsets The Parks Miss'

The Walt Disney Company DIS stock analysts see concerns for the company’s theme park business weighing on financials and offsetting profitability shown for streaming in the third quarter.

The Disney Analysts

• Bank of America analyst Jessica Reif Ehrlich reiterated a Buy rating and lowered the price target from $145 to $120.
• Rosenblatt analyst Barton Crocket reiterated a Buy rating and lowered the price target from $129 to $122.
• Needham analyst Laura Martin reiterated a Buy rating and lowered the price target from $145 to $110.
• JPMorgan analyst David Karnovsky maintained an Overweight rating and lowered the price target from $135 to $125.

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Bank of America: Normalization of Disney Parks profitability was a key focus for Ehrlich in a new investor note.

"Exiting the pandemic, the theme park recovery has been a bright spot for DIS. This was driven by pent-up demand to travel, along with several pricing and efficiency initiatives, which drove both top and bottom-line growth," Ehrlich said.

The analyst said management is indicating that theme park demand is slowing, which could impact operating income for the segment.

"This does not come as a big surprise given intra-quarter commentary and competitor results but will likely remain a key area of investor focus."

Profitability for the DTC segment could see pressure with a plan to ramp up technology and investment spending. "Investment spent will likely blunt the magnitude of profitability improvement n FY25."

Rosenblatt: A mixed quarter from Disney saw pressure for its parks and linear TV segment with strength shown in DTC and sports advertising, Crockett said.

"Disney has meaningful asset value, that we believe is also a support," Crockett said.

The analyst is not concerned about the theme parks business showing weakness.

"The upside in the Entertainment units more than offset the Parks miss."

Crockett said the DTC segment should benefit from a price hike and a clamp down on password sharing.

Needham: The DTC segment and its profitability were key highlights in the third quarter for Martin.

"DIS has experienced low churn despite price increases and expects to grow engagement with new features and content," Martin said.

The analyst also highlighted the strength of Disney's sports segment with the ESPN brand. Disney had market share of 46% of total sports viewing minutes among adults aged 18-49, Martin said. Disney continues to invest in sports, scripted TV, and movies, “balancing these investments across linear and streaming platforms to maximize value."   

Martin sees Disney as the winner of a streaming war with its marketing, strong library titles and strong IP franchises.

JPMorgan: The performance and commentary on the Parks segment could weigh down strong results from entertainment and sports, Karnovsky said.

DTC saw profitability in the third quarter and is expected to increase its profitability in the fourth quarter.

Karnovsky said the Experiences segment saw a "moderation in demand" and the trend could continue in the next few quarters.

After the quarterly results and management commentary, Karrnovsky sees a "range of catalysts" and said Disney stock valuation is "attractive."

"Concern over parks has largely dominated investor conversations recently, and with expectations now reset, we think attention can move toward other segments, including DTC, Sports, and CS&L where results well exceeded our forecasts."

Catalysts include a strong film slate, a password-sharing crackdown for Disney+, price increases for streaming platforms and streaming joint ventures, analysts say.

DIS Price Action: Disney shares are down 1% to $85.48 on Thursday versus a 52-week trading range of $78.73 to $123.74. Disney stock is down 5% year-to-date in 2024.

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