Disney's stock is having its best day in 3 years as new message of 'urgency' resonates

By Emily Bary

Disney's stock is roaring higher as analysts praise progress on streaming profits

Walt Disney Co.'s stock has languished in recent years, but now the company is acting with "urgency" to tackle a critical goal.

That message is resonating with investors after Chief Financial Officer Hugh Johnston outlined a double-digit margin target for the company's streaming business, which has made great financial strides even as it currently continues to lose money. While Johnston didn't give a specific timeline for the goal, he said Disney (DIS) felt "a sense of urgency in getting there."

Disney shares were rallying 9.8% in Thursday morning action and on track for their best single-day percentage gain since Dec. 11, 2020, when they advanced 13.6%, according to Dow Jones Market Data.

The "urgency" comment "was one of the single most impactful statements on a call filled with key highlights," according to MoffettNathanson analyst Michael Nathanson. He sees Disney as more focused now on becoming the No. 2 streaming player by profits and scale, behind Netflix Inc. (NFLX)

Opinion: Disney is making progress on a key goal, and is ready to pull another lever

"No other company - not even Disney - has made the case yet theyhave the potential to build a large, profitable business," Nathanson wrote. "There appears to be a new urgency to spend more time focused on that opportunity."

Nathanson has a buy rating and $120 target price on Disney's stock.

Bernstein analyst Laurent Yoon also noted that there were many positive points in Disney's fiscal first-quarter report and call, "but the metric that really maters is [direct-to-consumer] profitability."

Streaming losses improved to $138 million in the latest quarter from $420 million three months back, making Wall Street optimistic that Disney will be able to reach its target for streaming profitability faster than expected.

Management still expects to reach the goal in the fiscal fourth quarter, "but, frankly, who believes that anymore?" Yoon asked. He said the "new goalpost" for investors is the fiscal third quarter, with some maybe even expecting Disney will achieve the milestone in the fiscal second quarter, which is ongoing.

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Disney appears to have "turned a corner," Yoon added. The company "still has a few battles to finish off," including a proxy fight with Trian Partners that should end no later than early April, but it "seems like the days of fixing may indeed be behind Disney."

He boosted his price target on the stock to $115 from $103, while sticking with an outperform rating.

Evercore ISI's Vijay Jayant called the streaming-margin target "reassuring," though not particularly surprising, and he praised the company's trajectory overall.

"Strategic pivots, management changes, secular shifts, and cyclical headwinds have made it a challenging few years, but early indications of Disney's next era suggest the company is on a credible path to return as an earnings compounder with sustainably robust free cash flow that should support a burgeoning capital-returns story," Jayant wrote, as he upped his price target to $115 from $100 and kept his outperform rating on the stock.

Needham's Laura Martin joined him in the bull camp, upgrading Disney shares to buy from hold and establishing a $120 target price in a note to clients titled: "The Magic's Back."

She liked the company's growing focus on cost control, calling out Johnston's commentary about how Disney is "on track to meet or exceed $7.5 billion in cost savings."

"'Exceed' was new language implying that this is more likely now," she wrote.

-Emily Bary

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02-08-24 1035ET

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