Proactive Investors - Walt Disney Co (NYSE:DIS, ETR:WDP) is facing challenges heading into fiscal year 2025, with weakening demand at its theme parks and a slower-than-expected profitability ramp in its direct-to-consumer (DTC) streaming business, according to Bank of America (NYSE:BAC) (BofA).
Shares of Disney have declined from their highs due to these pressures, which have raised uncertainty around the company’s earnings growth.
Bank of America, however, maintained its ‘Buy’ rating on the stock with a price objective of $120, compared to the current share price of $96.19.
"We expect investor focus will be on any commentary around FY25 and Theme Park demand trends," analysts wrote. BofA noted that consensus forecasts have already been recalibrated after downward estimate revisions, reflecting the known challenges in Disney's key businesses.
Headwinds in theme parks and streaming
While Disney boasts best-in-class assets, including premium intellectual property, ESPN, and an iconic theme park franchise, the report highlights uncertainty surrounding the recovery of theme park demand and the slower profitability ramp in its DTC business, which includes Disney+.
The company’s recent cruise ship launches, Disney Adventure and Treasure, could provide a boost, but limited visibility on a broader improvement in theme park attendance has weighed on investor sentiment.
Additionally, Disney had set double-digit margin targets for its DTC segment, but heavy investments in the near term are expected to slow the pace of profitability growth. Bank of America pointed out that these factors will likely affect the company’s FY25 earnings outlook.
Eyes on FY25 guidance
Bank of America expects Disney to provide some commentary on its FY25 outlook during the upcoming fourth-quarter earnings call. Given the uncertainties, the report suggested the company’s new CFO may offer a more conservative financial outlook.
Despite the near-term headwinds, BofA maintains a positive long-term view, noting potential upside if theme park demand improves or DTC investment needs are lower than anticipated.
“We argue the subsequent estimate reduction post FY3Q contemplates these two significant uncertainties and should theme parks improve or the magnitude of DTC investment be less than expected that could drive potential upside to FY25 forecasts,” analysts wrote.
Disney shares have fallen significantly since April, but Bank of America believes the market has now priced in the company’s key challenges.