Walt Disney (NYSE:DIS) stock has not been a favorite amongst investors in recent years, with the shares often underperforming the broader markets. However, its recent fiscal fourth-quarter earnings report had enough good stuff in it to show the company’s cost-cutting efforts and bid to improve the bottom-line are bearing fruit.
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Looking ahead, Disney’s FY24 guidance is optimistic, forecasting $8 billion in free cash flow (FCF) and $14 billion in cash flow from operations (CFFO). Morgan Stanley analyst Benjamin Swinburne believes that this outlook demonstrates “both the continued healthy growth of its Experiences segment and a commitment towards managing its cost base.”
“In particular,” notes the 5-star analyst, “the $14bn in operating FCF is the highest since 2018 as growth in Experiences has now fully offset the pressures in its Media businesses.”
In fact, given its scale, growth, and returns, Swinburne makes the case Disney’s Experiences segment, which consists of its global parks, resorts, cruises, vacation, and consumer products businesses, is an “underappreciated asset in DIS shares.” Via these businesses, Disney’s iconic brands, IP, and franchises are all “directly monetized” in the shape of physical goods and consumer experiences.
With an estimated $32.9 billion revenue in C2023, compared to other leisure firms, Disney’s Experiences segment operates at a significantly bigger revenue scale, with no competitor other than maybe Universal Parks & Experiences boasting access to “a similar level of quality, global IP.”
Thanks to ongoing growth at the Experiences segment, Swinburne sees “accelerating OI growth in FY24.” But that growth will also be facilitated by an improving DTC (direct to consumer) business with evidence of declining losses. In fact, just as the company expects, Swinburne believes that Disney is on track to reach DTC profitability in FY24. “This confidence stems primarily from 1) evidence to date of pricing power and 2) cost action that the company has and continues to take, both in content spending and support costs,” the analyst explained.
With such strong fundamentals, Swinburne believes it’s time to load up. He rates Disney shares an Overweight (i.e. Buy), and raises his price target from $110 to $135. This new target implies ~42% upside from current levels. (To watch Swinburne’s track record, click here)
Most analysts back Swinburne’s take – 17 others have recently posted positive reviews – and with the addition of 6 Holds and 1 Sell, the stock receives a Moderate Buy consensus rating. At $106.43, the average price target implies 12-month share appreciation of 16%. (See Walt Disney stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
