Disney Stock Rides Bullish Wall Street Wave After Upbeat Q3 Earnings

The Hyperion Theater at California Adventure. The park was among the last in the Disney portfolio to reopen after lengthy Covid-19 shutdowns.
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Disney stock entered the home stretch of the trading day up nearly 2% amid widespread cheers on Wall Street for its fiscal third-quarter earnings report.

The company delivered encouraging numbers across the board on Thursday, showing continued gains in streaming and the long-anticipated resuscitation of its theme parks business. While results didn’t restore the company to its well-oiled pre-pandemic state, they persuaded many analysts and observers that the company’s recovery is well under way. With trading volume at three times normal levels, Disney shares were at $182.14, their highest point in nearly a month. Broader indices were largely flat.

Benjamin Swinburne of Morgan Stanley gave the ebullient title “Back on Space Mountain” to a note he sent to clients. He pointed to the recovery of the company’s Parks, Experiences and Products division, which swung to a profit. “While the delta variant represents new near-term risk,” he acknowledged, “a strong U.S. consumer is expected to last into 2022 and Disney’s strength in IP and investment in tech at Parks reinforce our confidence in this important earnings driver.” Swinburne reiterated his “overweght” (buy) rating on Disney shares, with a 12-month price target of $210.

“In a summer marred by numerous DTC services posting softer-than-expected subscriber results, Disney has yet again bucked industry trends and beat expectations for Disney net adds,” RBC Capital Markets’ Kutgun Maral wrote. He has a “buy” on shares, also at a $210 target price.

Tuna Amobi of CFRA also kept his “buy” rating and $220 target. In a note, Amobi said the quarterly numbers “showed major strides on the road to recovery while successfully pivoting to its direct-to-consumer offerings, on stronger-than-expected aggregate net global streaming subscriber additions.” Continued re-openings of theme parks, theaters and live sporting events as Covid-19 vaccines continue to roll out, he added, provide “a silver lining on the gradual path to more normalized operations.”

A few caveats were issued along with the generally optimistic takeaways. The main causes for skepticism are the outlook for the film studio given the uncertainties around theatrical releases, and the slim profitability of most recent growth in streaming. While Disney topped estimates by reaching 116 million subscribers on Disney , the vast majority of the 12 million new customers came in via Disney Hotstar, a lower-priced offering in India. Disney has about 45 million subscribers there, compared with 35 million in the previous quarter. That means growth of subscribers elsewhere has been modest — though the company is already halfway to its 2024 goal of 230 million to 260 million subscribers.

Michael Nathanson of MoffettNathanson reiterated his “neutral” rating on the stock and maintained his price target of $185. In a note to clients, though, he tipped his hat to the parks reound. “It is clear as day that Disney’s domestic theme parks – the core engine of Disney’s near-term earnings per share recovery – are in an incredibly strong position to boomerang higher in the coming quarters as park demand returns closer to prepandemic levels,” he wrote, saying the comeback was “unimaginable” at this time last year.

The analyst’s main reservation concerns the outlook for streaming, which powered gains in the stock in 2019 and 2020. Thus far in 2021, shares have essentially broken even. “Perhaps the first six months of calendar 2021 have been anomalistic due to the opening up of many economies post-pandemic and a dearth of more recurring Disney content,” Nathanson wrote. “We – and the market – are clearly giving the company and peers like Netflix the benefit of the doubt that subscriber growth will revert to mean in 2022. To be clear, we are assuming that Disney will add an average of 25 million non-Hotstar subs from fiscal 2022 through fiscal 2026, which could prove to be aggressive.”

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