Shares of entertainment giant Walt Disney (NYSE:DIS) declined last week even after the company’s better-than-expected earnings report for the second quarter of Fiscal 2024. The earnings beat was overshadowed by management’s outlook that the Q3 FY24 operating income of the Experiences business is expected to be roughly in line with the prior-year quarter. While several analysts adjusted their price targets based on management’s guidance, they shrugged off the post-earnings sell-off in DIS stock. They remain bullish on the company’s long-term prospects.
Key Insight from DIS’ Q3 Earnings Report
Disney’s Q2 FY24 revenue increased 1.2% to $22.1 billion, while adjusted earnings per share (EPS) increased 30.1% to $1.21. The company attributed the strength in its results to its Experiences segment and streaming business.
Importantly, the entertainment portion of the company’s streaming business, comprising Disney+ and Hulu, became profitable in the quarter. However, the sports streaming services, comprising ESPN+, generated an operating loss of $65 million. Nonetheless, the company assured that it remains on track for its combined streaming businesses to reach profitability in Q4 2024.
Regarding the softer Q3 guidance for the Experiences segment, which mainly includes theme parks, the company explained that the business is expected to be impacted by higher expenses and some normalization of post-COVID demand. Nevertheless, Disney expects the Experiences segment’s operating income growth to bounce back significantly in Q4 due to “fewer comparability or timing factors.”
Analysts Remain Optimistic About DIS Stock
Following the Q2 FY24 print, Needham analyst Laura Martin reaffirmed a Buy rating on Disney stock with a price target of $145. The analyst highlighted several positives, including the addition of 6.3 million subscribers in Disney+, an increase in FY24 adjusted EPS growth outlook to 25% from 20%, and the rise in ad revenue at Disney and ESPN U.S.
Martin believes that the post-earnings sell-off in Disney stock seems “overdone.” She thinks that the Q3 FY24 weakness in the Experiences segment’s outlook is mainly due to one-time items like the Easter holiday shift and increased spending on Media AV and tech costs.
Likewise, Loop Capital analyst Alan Gould called the post-earnings decline in DIS stock an overreaction. Gould maintained a Buy rating with a price target of $140. The analyst believes that the company’s normalized theme park business is a solid long-term opportunity, with strong barriers to entry that is unlikely to be disrupted by the internet. The analyst expects the business to rebound in the September quarter.
Meanwhile, UBS analyst John Hodulik lowered the price target on Disney to $130 from $140 but reaffirmed a Buy rating on DIS stock. The analyst believes that the company’s parks business remains a growth driver, given its underlying momentum. Moreover, Hodulik thinks that DTC (direct-to-consumer) profitability should inflect in Fiscal 2025 with cost rationalization, Hulu consolidation, and password sharing.
Is Disney a Buy, Sell, or Hold?
Overall, Disney stock scores a Strong Buy consensus rating based on 22 Buys and one Hold rating. The average DIS stock price target of $134.81 implies 27.4% upside potential.
Conclusion
Despite the recent pullback in Disney stock, analysts remain bullish on the company’s prospects. They expect continued improvement in the profitability of the streaming business and the overall company as well.
