UPDATED with closing stock price. A number of Wall Street analysts have increased their price targets for Disney’s stock after the media giant reported better-than-expected quarterly earnings and outlined its streaming-focused future.
Shares closed Friday at $138.41, up more than 2% on twice the normal trading volume. While shares had poked above $140 on Monday and Tuesday before retreating, Friday’s trade returned shares to where they were trading in February, a remarkable comeback.
The buoyancy of the stock continues to reflect widespread optimism about Disney despite the daunting reality of COVID-19, which continues to hamper theme parks, moviegoing and live sports.
Coronavirus infection rates set daily records in the U.S. and Europe and the company noted Disneyland in Anaheim won’t be able to reopen in 2020. That update came as Disney reported fiscal fourth-quarter results that bettered analysts’ expectations. While the company lost money in the quarter, it also said Disney+ has attracted 73.7 million global subscribers one year after it launched, already comfortably within the company’s internal five-year forecast.
Michael Morris of Guggenheim implemented one of the biggest step-ups, lifting his 12-month price target to $165 from $140. “While we expect a multi-year negative impact from COVID-19, we believe investors will expect a recovery and as such will value shares on the company’s un-disrupted potential,” he wrote in a note to clients. Morris, who has a “buy” rating on Disney, noted that he has a multiple on the company’s SVOD services that is “consistent with our valuation approach for Netflix.”
Others on Wall Street disagree with comparing Disney with Netflix, which has 195 million global streaming subscribers and no legacy business lines to manage. Michael Nathanson of MoffettNathanson, who has a “neutral” rating on Disney, also believes Netflix shares are overvalued. In a note to clients headlined “The Disney Rorschach Test,” he raised his price target $3 to $139. Even though the launch of Disney+ has “exceeded our wildest imaginations,” Nathanson wrote, “we are unwilling to take the leap of faith on DTC valuation that the market is so willing to make.”
Cowen & Co.’s Doug Creutz is also in the middle-ground camp, warning about the rising cost of feeding content to streaming services, whose economics are significantly different from those of traditional media. He reiterated his “market perform” rating, but boosted his target by $12 to $115. In a note, he wrote that Disney+ is “off to a very strong start,” but despite positive trends with it as well as Hulu and ESPN+, “fiscal first-quarter guidance suggests continued significant ramp in spending.”
Tim Nollen, who rates Disney shares “outperform,” sounded more positive notes, increasing his price target from $140 to $160.
December 10, when Disney plans to host a major presentation to investors, “will be an important day,” Nollen wrote in a client note. “There is a good chance Disney will announce extra near-term investment costs to build out its global DTC ambitions.” Disney CEO Bob Chapek characterized the planned influx of spending on streaming as a move that will put “wind in the sails” on Disney+. Analysts by and large appear to share his upbeat view.
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