Disney dips as Macquarie moves to sidelines on near-term uncertainties
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Disney stock (NYSE:DIS) had dipped 1.8% in early Friday action following a downgrade of the stock to Neutral at Macquarie, which sees some current clouds carrying some longer-term weight.
"We continue to like Disney for the long term for its [intellectual property], global brand recognition, and ability, we believe, to fully transition to a successful [direct-to-consumer] streaming business. But the near term is clouded with uncertainties," analyst Tim Nollen said.
For one, the linear television business is still a big part of Disney's financials (30% of revenue and 50% of operating income in 2023, Nollen estimates), but "linear networks are getting worse, fast -â ad revenues will likely remain negative in F3Q and affiliate revenue may remain negative for good as cord cutting gathers speed."
Streaming is making progress with declining losses, but "we believe prior guidance of DTC attaining profitability during FYâ24 may now be off the table," Nollen said. That includes the likelihood that Disney will now buy out Comcast (CMCSA) to take full ownership of Hulu at a price of $9B-plus; "this along with a slower pace of sub adds (Disney+ may actually lose subs for the 3rd straight quarter in F3Q) may factor in to extended DTC operating losses beyond FYâ24."
And it's "not if, but when and how to put ESPN over the top. Doing so is inevitable, and itâs hard to see how it will be smooth."
Meanwhile, on the other major side of the business, a strong Parks recovery from the COVID-19 pandemic has been a pillar for Disney, but "growth is set to slow from here, removing a recent support," Nollen said, adding that a recession "could yet swing this business negative."
He's cutting expected 2023 earnings per share to $4.01 from $4.21, and in 2024 to $5.16 from $5.69. That also adds up to a target price cut to $103 from $125, cutting implied upside to 12%.
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