Barclays Upgrades Disney Stock Amid Turnaround Strategy 

Walt Disney NYSE:DIS

Disney (NYSE:DIS) witnessed a more than 2% increase in its shares on Monday, following a fresh upgrade from Wall Street. Barclays analyst Kannan Venkateshwar upgraded the stock from Equal Weight to Overweight and raised the price target to $135 from the previous $95. This move suggests an approximately 15% upside based on the current trading levels of about $120 a share.

Venkateshwar highlighted better-than-expected free cash flow and earnings guidance, alongside “tactical tailwinds” such as Hollywood strikes, Hulu’s consolidation, and cost reductions, which have bolstered investor confidence. Additionally, he noted that the propensity among media investors to favor Disney has led to the stock outperforming broader markets significantly this year, surpassing expectations.

Disney’s stock has surged more than 30% since the beginning of the year, in contrast to the S&P 500’s 10% rise during the same period, marking a significant turnaround from multiyear lows experienced last year.

Despite previous challenges including a declining linear TV business, slower growth in its parks segment, and losses in streaming, Venkateshwar believes Disney’s next phase could be transformative, with several turnaround initiatives in progress likely to yield positive results starting next year.

In his bullish scenario, Venkateshwar anticipates streaming profitability to arrive sooner than expected, potentially breaking even a quarter or two earlier than the company’s guidance of Q4 2024. He predicts Disney streaming margins to exceed Netflix’s, estimating potential margins in the 25% to 30% range, similar to current linear margins.

Potential positive surprises may include ESPN’s forthcoming streaming partners for its over-the-top service set to launch in fall 2025, as well as a renewed focus on long-term succession, plans post-proxy battle.

Conversely, the bear case outlined by the analyst highlights declining non-sports TV viewership and revenue amid increased cord-cutting. While streaming remains a potential positive, stagnant subscriber growth and pricing challenges could offset revenue growth gains.

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