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Walt Disney DTC earnings power the 'most important' driver of shares in the coming years - Morgan Stanley

Published 12/13/2023, 08:25 AM
Updated 12/13/2023, 08:27 AM
© Reuters.  Walt Disney (DIS) DTC earnings power the 'most important' driver of shares in the coming years - Morgan Stanley

Morgan Stanley raised the Walt Disney (NYSE:DIS) price target to $110 from $105 per share on Wednesday, with the firm maintaining an Overweight rating on the stock following a deep dive.

Analysts revealed the investment bank's five key takeaways, with the first being that Parks & Experiences provides downside support in DIS shares. "This segment represents ~2/3 of FY24 segment OI, grows OI 5-10% YoY, and earned a 20% ROIC in FY23," they explained.

Meanwhile, Morgan Stanley believes that generating direct-to-consumer earnings power is likely the "single most important driver of shares" over the next few years. "In FY24, we expect Disney to deliver ~14% segment OI growth and reach DTC profitability," analysts said. "Disney's domestic DTC business is approaching the market leader Netflix in revenue scale. In FY24, we expect Disney's US DTC business (Disney Plus US, Hulu
SVOD, and ESPN Plus) to reach $14bn+ in revenue, with roughly 70-80mm unique household relationships across its standalone and multi-product offerings."

"Entertainment linear network revenue declines have yet to be met with cost reductions. We update our analysis of strategic options for lowering exposure," the analysts added. "As ESPN (15-20% of OI) preps for a 'flagship' DTC launch, we see a less inflationary rights market and trim the estimated NBA renewal to 1.6x AAV (9 years)."

Analysts also noted that after disappointing film performances lately, "Disney's next IP tests include 'Deadpool 3,' 'Inside Out 2' (FY24), and 'Mufasa,' 'Fantastic Four,' 'Moana' (FY25).

Morgan Stanley continues to see a positive risk/reward skew in Disney shares.

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Latest comments

If Iger can get the company out of politics and back to family values, shares will soar.
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