Goldman starts Disney with buy rating, predicting big Disney+ subs and full parks recovery

Published Mon, Jul 13 20207:58 AM EDTUpdated Mon, Jul 13 20208:23 AM EDT

(This story is for CNBC Pro subscribers only.) Goldman Sachs is getting behind media giant Disney, betting its streaming service numbers will top expectations and its theme parks will return to normal following the pandemic. The Wall Street firm initiated coverage of Disney with a buy rating and a $137 per share price target, which is more than 14% upside from the stock's Friday close. The call sent Disney's stock up about 1% in premarket trading on Monday. "We believe the market is undervaluing its DTC segment by > 50%, based on our outlook for Disney+ reach to 150mn subs by 2025 and to achieve proﬁtability by F2021 (consensus F2023)," Goldman Sachs analyst Brett Feldman told clients. "We also expect that DIS's Parks and Studios segments will fully recover post-COVID, and that synergies with DTC are underappreciated." Shares of Disney are down more than 17% in 2020 as the coronavirus pandemic forced the theme park operator to shut its parks, its biggest profit driver . Last year, the parks segment accounted for 37% of the company's $69.6 billion in total revenue. Disney also faced movie theater closures, film and TV production shutdowns, docked cruise ships and the suspension of most live sporting events amid the Covid-19 shutdowns. A bright spot for Disney has been its streaming service, Disney+, which launched in November of 2019 as a competitor to Netflix, Hulu and Amazon Prime Video. The service stunned as Disney said in April the streaming platform had more than 50 million subscribers . Goldman expects Disney+ to reach 150 million subscribers by 2025, which could prove conservative as it would represent only 22% of Goldman's total addressable market of 712 million subscriber, the firm said. The firm also expects Disney+ to be profitable by 2021, which is two years faster than consensus, "based on our view that as Disney+ approaches Netflix-like scale it will approach Netflix-like economics," Feldman added. "With the major media companies generating 30-90% of their revenue from linear video advertising and afﬁliate fees, we believe investors' outlook for their ability to replace these revenues via direct-to-consumer (DTC) services will be a key a stock driver," Feldman said. Amid the turmoil for the company, Goldman Sachs is confident the parks will fully recover after the pandemic. Plus, Disney+ will also boost the theme park business. Disney World Orlando reopened on Saturday. "We believe Disney's track record of material outperformance in Parks and Film will persist as the economy recovers from the COVID pandemic, and that synergies between these segments and Disney+are underappreciated by investors," said Feldman. — with reporting from CNBC's Michael Bloom.

In this handout photo provided by Walt Disney World Resort, guests stop to take a selfie at Magic Kingdom Park at Walt Disney World Resort on July 11, 2020 in Lake Buena Vista, Florida.

Matt Stroshane | Walt Disney World Resort | Getty Images

(This story is for CNBC Pro subscribers only.)

Goldman Sachs is getting behind media giant Disney, betting its streaming service numbers will top expectations and its theme parks will return to normal following the pandemic.

The Wall Street firm initiated coverage of Disney with a buy rating and a $137 per share price target, which is more than 14% upside from the stock's Friday close. The call sent Disney's stock up about 1% in premarket trading on Monday.