Disney stock’s explosive start to 2024 raged on Wednesday, as shares of the entertainment giant rallied thanks to an optimistic analyst note suggesting the stock still has room to run thanks to upside from its oft-maligned streaming business.
KEY FACTS:
Shares of Disney rose about 1% Wednesday morning to above $120, notching their highest intraday price since Aug. 18, 2022. That sends Disney stock’s year-to-date return to a robust 34%, tracking toward Disney’s best first-quarter return to investors since 2000 with two-and-a-half trading sessions left in this year’s opening quarter. Wednesday’s rally followed a note from UBS analysts upping their Disney share price target by $20 to $140, about 16% above Disney stock’s Wednesday level, with the UBS group led by John C. Hodulik outlined the company’s longtime money-losing streaming operations as the “biggest source of near term upside” for Disney.
UBS projects Disney’s direct-to-consumer unit, which includes Disney+, Hulu and ESPN+, to break even by the fiscal quarter ending this September, quite the turnaround from 2023’s comparable period’s $420 million operating loss and the 2022 comparable period’s $1.5 billion loss. The bank’s streaming profitability estimates for Disney’s 2024, 2025 and 2026 fiscal years are all well above consensus analyst forecasts, and UBS projects Disney’s North American streaming gross sales and revenue per user to both notably close in on industry leader Netflix this year.
Other tailwinds for Disney mentioned by Hodulik include expansion in Disney’s highly profitable parks segment and potential for fresh revenue streams in its content licensing and proposed sports streaming bundle.
WHAT TO WATCH FOR:
The results of a high-stakes vote at Disney’s annual shareholder meeting next week, which could shake up Disney’s board of directors. Billionaire activist investor Nelson Peltz and his ally Jay Rasulo, Disney’s chief financial officer from 2010 to 2015, are Disney-opposed nominees to join the company’s board, running on a platform aiming to up Disney’s focus on its bottom line. There’s almost nothing Wall Streets hates more than declining profits, but UBS wrote Wednesday the “biggest risk” for Disney stock is if Peltz and Rasulo are in fact appointed to the board, as it could cause a “downturn” in Disney shares’ performance as it threatens to erase the “benefits” associated with Disney CEO Bob Iger’s tenure. Disney has provided a 32% return on investment since Iger returned to the company’s top post in Nov. 2022, roughly equivalent to the S&P’s return over the period. Billionaire filmmaker George Lucas, reportedly Disney’s largest individual shareholder, opposes the nomination of Peltz and Rasulo.
