At $88.53, Disney shares were at their lowest point since 2014, with bears seizing on the company’s much-lower-than-expected profit forecast as well as a significant undershooting of Wall Street expectations for the fiscal fourth quarter. Disney’s streaming business has proven a bright spot (Disney+ added 12.1 million subscribers to hit 164.2 million globally) but profitability is weighing on investors’ minds despite executives’ efforts to reassure them. Traditional businesses like linear TV are under significant pressure from cord-cutting.
In a flurry of research notes, analysts debated the puts and takes from the earnings report and conference call with executives. Several of them slashed their stock price targets for the company, though they largely held steady with their recommendations to investors and didn’t issue downgrades based on the latest numbers.
Michael Nathanson of MoffettNathanson called the company’s forecast for fiscal 2023 segment earnings growth of high-single-digits, far below Wall Street’s consensus of 25% and his own outlook for 34% “the biggest controversy” in the financials. “Rarely have we ever been so incorrect in our forecasting of Disney profits,” the analyst wrote. “Given the company’s confidence that Parks trends appear resilient, it appears that the culprit for the massive earnings downgrade is much higher than expected DTC losses and significant declines at linear networks.” Nathanson, who maintains a “market perform” (neutral) rating on Disney shares, lowered his 12-month price target by $30, to $100.
The winner for cheekiest headline goes to Michael Morris of Guggenheim, who nodded to Obi-Wan Kenobi’s Jedi mind trick in titling his Disney note “These Are Not The Results You’re Looking For.” He dropped his 12-month price target to $115 from $145, but still has a “buy” on Disney shares.
Jessica Reif Ehrlich of BofA Securities conceded the quarter was “tough,” but she painted a brighter picture than many of her Street colleagues. She reiterated her “buy” rating on the stock, but trimmed her 12-month price target to $115 from $127.
“The quarter and outlook were disappointing, but not as bad as headline numbers may suggest,” she wrote in a note to clients. “We believe underlying theme park demand remains healthy and the operating income miss is largely due to one-time items vs. moderating demand. In linear networks, Disney is experiencing many of the same headwinds other industry participants are facing, but we believe their iconic brands and scaled/growing DTC service position them well to better manage these headwinds and industry transitions relative to peers.”
Ben Swinburne of Morgan Stanley expressed even more optimism than Ehrlich, affirming his “overweight” (buy) rating on Disney shares and setting a $125 price target. He characterized the lighter-than-expected revenue and profit guidance for fiscal 2023 as “primarily a function of margin pressure at legacy TV networks, with lower F4Q Parks & Streaming results also contributing.” In a note to clients, Swinburne wrote, “We remain bullish the Parks segment growth outlook, continue to expect it will represent the majority of Disney’s EPS over time, and believe shares are undervaluing the Parks assets at current level.”
Another notable bull was John Hodulik of UBS, who carries a “buy” rating on the company’s shares. While he did lower his price target to $122 from $135, he concluded, “While the macro environment presents challenges, we still view Disney as best positioned for the transition to a streaming future.”
Amid the stock market drama Disney CEO Bob Chapek traveled to New York today. The exec, who has been increasingly visible in recent months as the worst of Covid has eased, made another public appearance at the Paley Center for Media’s International Council Summit in New York.