Critics eviscerated Disney’s unnerving attempt to resurrect its cash cow as “the beginning of a horror movie,” but one Wall Street analyst argues the Dow Jones stock is a screaming buy.
Goldman Sachs analyst Brett Feldman gushed about Disney stock’s virtues in a note to clients . He believes the market is grossly exaggerating its headwinds and wildly undervaluing the segments of its business with growth potential.
Goldman initiated coverage on Disney with a buy rating, a $137 stock price target, and a prediction that the firm’s streaming service will approach “Netflix-like scale.”
Feldman expects Disney+ to crush expectations, achieving profitability by 2021 and hitting 150 million subscriptions by 2025.
We believe the market is undervaluing its DTC segment by >50%, based on our outlook for Disney+ reach to 150mn subs by 2025 and to achieve proﬁtability by F2021 (consensus F2023)[.]
Disney+ is the flagship component of the media giant’s direct-to-consumer segment. The streaming service attracted a phenomenal 54.5 million subscribers during its first six months, nearly as many as the company’s lower-bound estimate (60 million) for 2024.
Goldman’s forecast assumes direct-to-consumer revenue is a major growth area for Disney. But with newspaper headlines dominated by the pandemic, traders are understandably focusing on a different segment: parks, experiences and consumer products.
This segment, which accounted for 37% of all Walt Disney revenue in 2019 , has been utterly hammered by the pandemic.
The company cautiously reopened its fabled Orlando theme park over the weekend, and it caused quite a stir on social media.
Critics torched Disney for reopening the park while the state of Florida’s local virus outbreak appears to move in the wrong direction.
The same day Disney World opened its doors to the general public, Florida reported a record-setting 15,299 infections. They claim the test positivity rate – 19.6% as of Sunday – has spiraled to alarming levels too.
CNN business editor Alexis Benveniste encapsulated the mood when she said Disney World’s new commercial “feels like the beginning of a horror movie.”
It didn’t take long for Twitter to do its thing and “fix” the promo:
These headwinds are real, but Feldman says they’re transitory.
When the pandemic finally passes, both Disney’s parks and its equally-beleaguered studios segments will “fully recover.” Assuming Disney+ hits Goldman’s targets, the stock will emerge from the crisis with a trifecta of potent fundamentals.
We believe Disney’s track record of material outperformance in Parks and Film will persist as the economy recovers from the COVID pandemic, and that synergies between these segments and Disney+are underappreciated by investors[.]
Goldman doesn’t expect Disney stock to suddenly shoot back to pre-pandemic highs. The good news for investors is it doesn’t have to.
While a mammoth move in tech has launched the overall stock market higher – the Nasdaq is up 20% in 2020, and the S&P 500 is on the verge of turning positive – Disney stock is still struggling to recover from its mid-March sell-off.
As of Monday, Disney had lost 18% since the new year, lagging its fellow blue-chip peers in the Dow Jones Industrial Average (DJIA) by a wide margin.
At $137, Feldman’s price target offers around 15% worth of upside. Even then, DIS would still trade more than 10% below the all-time high it set just before the market plunged.
The overall Wall Street outlook is a bit less optimistic, though the consensus views DIS as a “moderate buy.”
According to TipRanks, nine analysts maintain buy ratings, compared to 11 hold and two sell ratings.
The average price target is $123 , implying just 3.5% worth of upside from Disney stock’s present level near $119.