Disney (DIS) stock rose more than 2% on Monday following fresh stock gains on Wall Street.
Barclays analyst Kannan Venkateshwar upgraded the stock from equal weight to overweight and raised his price target to $135 from $95. The move represents an increase of about 15% based on current trading levels of about $120 per share.
Venkateshwar blamed better-than-expected free cash flow and earnings guidance, along with “tactical tailwinds” such as the Hollywood strike, Hulu integration and cost reductions, to help boost investor confidence. .
On the other hand, “a trend among media investors to be long on Disney stock has resulted in the stock materially outperforming the broader market so far this year, faster than we expected.”
The stock has soared since the beginning of the year, up more than 30% compared to the S&P 500's 10% rise over the same period.
This is a major turnaround for the company, whose stock hit a multi-year low last year.
The media giant is grappling with challenges including a decline in its linear TV business, slowing growth in its parks business and losses in its streaming business. A fierce proxy battle with activist investor Nelson Peltz is also clouding the company's outlook.
But Venkateshwar said Disney's next steps “could have a bigger impact because a lot of the rebuilding elements are still in progress and could take more forms starting next year.” ' he claimed.
The analyst said the bullish case is that the stock could benefit from faster-than-expected streaming profitability.
“We expect Disney Streaming to potentially break even one to two quarters earlier than the company's guidance for Q4 2024,” he explained. “This is partially driven by tailwinds from cost reductions over the past few quarters and recent price increases.”
Venkateshwar believes Disney is likely to achieve streaming profit margins “better than Netflix,” estimating potential profit margins in the 25% to 30% range, adding, “This is not that different from today's linear profit margins.”
Other “surprises in the upside story” include a renewed focus on long-term succession planning following the acquisition, as well as the possibility of an unannounced streaming partner for ESPN's over-the-top service set to debut around fall 2025 There is a battle.
