Morgan Stanley Raises Walt Disney’s Target Price to $175 Ahead of Investor Day 2020 Event

Morgan Stanley raised their stock price forecast on Walt Disney to $175 from $160, assigning an “Overweight” rating and said the entertainment company will lay out a vision for a more substantial streaming business, increasing investment spending and long-term targets in its Investor Day 2020 on December 10.

“Walt Disney (DIS) shares are up over 25% since November 1st, driven primarily by positive vaccine news and the implications for Parks, TV & Film production and distribution, and live sports. We now see our forecast for US Parks losses of -$2.9bn in F2021 and a return to prior peak OI in F2023 as potentially conservative. Recently disclosed reductions in headcount may further reduce losses even in the first half of fiscal 2021,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“The reduced risk of Parks disruption beyond expectations is helpful to shares and helps support our $175 price target (8x our FY25 DTC revs discounted back + 16x calendar ’22E core EPS). We note the S&P is now trading at roughly 22x fwd. EPS,” Swinburne added.

Early last month, the entertainment giant reported its first annual loss in over 40 years, however, the quarterly result was better-than-expected. Disney reported fiscal fourth-quarter losses of $710 million, or 39 cents a share, its second consecutive quarterly loss on a GAAP basis. For the full fiscal year, Disney recorded a GAAP net loss of $2.83 billion.

Morgan Stanley gave a target price of $220 under a bull-case scenario and $115 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Credit Suisse raised the target price to $178 from $146. JP Morgan upped the price objective to $170 from $160. Citigroup increased the stock price forecast to $175 from $150 and UBS raised the target price to $155 from $126.

In addition, Walt Disney had its price objective lifted by Goldman Sachs to $156 from $142. The firm currently has a buy rating on the entertainment giant’s stock. Deutsche Bank raised shares to a buy rating from hold and boosted its target price to $163 from $128.

Twenty analysts forecast the average price in 12 months at $163.89 with a high forecast of $182.00 and a low forecast of $136.00. The average price target represents a 6.13% increase from the last price of $154.43. From those 20 analysts, 17 rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Walt Disney’s shares closed 0.48% higher at $154.43 on Wednesday; the stock is up about 7% so far this year.

“Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long term content monetization opportunities. During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23,” Morgan Stanley’s Swinburne added.

“We now expect Disney Plus to end F25 with 145mm paid subscribers with revenues of nearly $11bn in FY25. Our Hulu, ESPN Plus, and Star assumptions are broadly unchanged leading to 250mm total streaming subscribers by 2025 generating over $33bn in revenues. Fiscal 2020 DTC losses came in at $3.3bn, below the original implied guidance for $3.5-4bn by our estimates, with much stronger customer growth partially offset by Disney leaning in on marketing. For fiscal 2021, we increase our estimate of DTC losses to $4-4.5bn and forecast profitability on DTC in 2024E.”