Walt Disney’s stock price (NYSE:DIS) has taken a beating in 2022 (and it’s not the only one), but that creates an attractive opportunity in the shares, Morgan Stanley says.
Disney stock is down 41% year-to-date and is now below its price at the time of the key launch of its streaming service Disney+, analyst Benjamin Swinburne noted. But even with some macroeconomic pressure built into the outlook, there’s an attractive risk/reward tradeoff at current levels, he says, reiterating an Overweight rating.
“Led by its Parks & Experience segment and with the benefit of a still young streaming business scaling to profitability, we see 20-25% adjusted EPS growth over the next three years,” Swinburne said.
Updating the model for a more difficult economy, the firm set its base case for earnings per share at $6 in fiscal 2024 (still below a $6.70 consensus), and to $4 in the bear case of a recession.
The parks will lead the way as the “majority” of Disney earnings going forward, Swinburne says. “Over many economic cycles, the Parks business has always come back after a downturn. In fact, the pandemic recession and recovery has seen the US Parks revenues grow at a +4-5% CAGR from FY19 to FY22, 3-4x faster than the prior cycle.”
Correspondingly, he’s cutting Disney+ estimates (now seeing core Disney+ subscribers of 150M by fiscal 2024, down from 155M-160M) after reflecting on the risk of a weaker consumer and Disney’s passing up Indian Premier League cricket streaming rights.
Overall, though, the content is “under-earning and under-valued,” Swinburne says. “The streaming transition of Disney’s entertainment content has been highly accretive to revenues but highly dilutive to earnings. We believe it can recover and ultimately surpass prior peak earnings over time, but more importantly that its content is undervalued at current share prices.”
He’s lowered his price target to $125, implying 34% upside from a current $93.39.
Disney has set its path for the next few years by giving a three-year extension to CEO Bob Chapek.