Shares of Disney (DIS) rose more than 2% on Monday after another upgrade on Wall Street.
Barclays analyst Kannan Venkateshwar upgraded the stock to Overweight from Equal Weight and raised his price target on the stock to $135 from $95 previously. The move implies an upside potential of about 15% based on current trading levels of about $120 per share.
Venkateshwar argued that better-than-expected free cash flow and profit guidance, along with “tactical tailwinds” such as the Hollywood strikes, Hulu consolidation and cost cuts, have helped boost investor confidence.
Meanwhile, “media investors' propensity to take a long position on Disney has resulted in the stock significantly outperforming broader markets so far this year, and doing so faster than expected.”
The stock has been on a tear since the start of the year, rising more than 30% compared to the S&P 500's 10% gain over the same period.
It's a significant turnaround for the company after its share price hit multi-year lows last year.
The media giant is grappling with challenges that include a declining linear TV business, slower growth in its parking business and losses in its streaming business. A heated proxy dispute with activist investor Nelson Peltz has also clouded the company's prospects.
However, Venkateshwar argued that Disney's next phase “may be more impactful as a number of turnaround elements are still in the works and could be more evident in numbers starting next year.”
In his bullish case, the analyst said that sooner-than-expected streaming profitability could be a boon for the stock price.
“We expect Disney streaming to reach breakeven perhaps a quarter or two earlier than the company's guidance for Q4 2024,” he explained. “This is due in part to the tailwinds of cost reductions in recent quarters and recent price increases.”
Venkateshwar said he believes Disney will likely achieve streaming margins “that are better than Netflix,” estimating potential margins at 25% to 30%, “which isn't all that different from today's linear margins.”
Other “positive narrative surprises” could include ESPN's yet-to-be-announced streaming partners for its over-the-top service, slated to launch sometime in fall 2025, as well as a renewed focus on long-term succession plans after the proxy battle .
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