Wells Fargo (NYSE:WFC) analyst Steven Cahall has lowered his stock price target for the Walt Disney (NYSE:DIS) Co. by more than $30 on Tuesday, September 5, 2023. Despite this, he maintained an "overweight" rating on the company's shares, forecasting that investor focus would gradually shift from immediate challenges to long-term potential.
Cahall's analysis comes amid a heated debate among analysts concerning the future of Disney. The entertainment giant is grappling with a range of issues, such as cord-cutting and streaming losses, uncertainty in the advertising market, and questions about the company's future business mix.
The analyst lowered his stock price target to $110 from $146. He linked this adjustment to a variety of factors, including Disney's recent lack of significant content successes. Cahall highlighted concerns that Disney's box office and Disney+ subscriptions could decline due to price increases. He also expressed worries about Disney's ability to successfully divest non-core linear TV networks, aside from ESPN.
However, the analyst also presented a bullish case for Disney based on its impressive intellectual property library, which appeals strongly to children and families. Cahall noted that these demographics make up roughly two-thirds of core Disney+ subscribers. He also emphasized the potential of Disney Parks, Experiences and Products (DPEP) business and projected that the direct-to-consumer (DTC) segment would break even by Q3 of fiscal year 2024.
Cahall expects an ESPN streaming launch in early fiscal year 2025 and predicts ESPN EBITDA to drop to around $1 billion in fiscal years 2024-2026, down from about $4 billion in fiscal year 2021. Despite these challenges, he believes that the company's long-term DTC earnings/margins story will emerge as the key reason to own Disney in duration by calendar year 2024.
He concluded his analysis by explaining why he maintains an "overweight" rating on Disney's stock: "We think the bad news is mostly baked in."
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