Analysts love Disney after earnings, say it's a great recovery play with streaming hedge

Published Fri, Nov 13 202010:45 AM ESTUpdated Fri, Nov 13 20202:00 PM EST

(This story is for CNBC Pro subscribers only.) Wall Street just got even more bullish on media giant Disney following its strong quarterly report that showed resilient streaming growth amid the pandemic. RBC Capital Markets upgraded Disney to outperform from sector perform and raised its price target on Disney from $135 to $170 per share, highest on Wall Street. Three other firms also hiked their price targets: Goldman Sachs to $156 per share, Bank of America to $166 and BMO Capital Market to $165. "Disney offers investors unique exposure to a recovery play that is supported by a combination of a compelling COVID-hedge with its unabated secular growth story across streaming and attractive underlying businesses like Parks, Consumer Products, and the Studio (i.e., cyclical exposure with premium assets vs. potential value traps elsewhere)," RBC Capital Markets analyst Kutgun Maral told clients. Shares of Disney are up 1.9% on Friday to $138.14 following the entertainment company's stellar earnings report Thursday night. Disney said its streaming service, Disney+, now has more than 73 million paid subscribers as of the end of the fourth quarter. Disney also reported a loss of 20 cents per share, far less dramatic than the loss of 71 cents per share expected by analysts, according to Refinitiv. Revenue also topped estimates. "Near term results will remain noisy and headwinds from the pandemic appear far from over, though we are encouraged by operational green shoots and continued execution on cost management," said Maral. RBC said Disney has several hopeful signs ahead, like the new streaming market and product launches, vaccine news, park and theater reopenings and a positive earnings revision cycle, which all bolster the firm's upgrade and Street-high target price. "Our key takeaway from the quarter is that DIS continues to exhibit better than expected momentum with its pivot towards direct-to-consumer streaming video," Goldman Sachs analyst Brett Feldman told clients. "While some of DIS's businesses remain materially impacted by COVID lock-downs, management's commentary that they are seeing strong demand for the available reservations at Walt Disney World supports our outlook for a rapid recovery in its Parks business post-vaccine." To be sure, Disney CFO Christine McCarthy said Disney will forgo its semi-annual dividend in January. She said the decision was in light of the ongoing impact of coronavirus and the company's decision to prioritize investment in its direct-to-consumer initiatives. Laura Martin of Needham, which has a hold rating on Disney, said this move could turn off value investors who like Disney for its hefty dividend. "This re-prioritization of funds implies (to us) that DIS is attempting to transition from a P/E stock to a growth stock traded on a EV/revs basis. What we worry about most is a potential time gap between when dividend-focused investors sell DIS shares and growth-oriented investors buy DIS's shares," Martin said. Here's what other Wall Street firm's said about Disney's quarterly earnings: Bank of America — Buy rating "Despite near term COVID pressures and key mgmt. changes—creating an element of uncertainty as the co. transitions, we believe DIS is well positioned to grow stronger from a faster Disney+ rollout, launch of a Star branded intl. entertainment offering and LT theme park margin potential." BMO Capital Markets — Outperform rating "Our DTC value is now $100 as DIS has shifted faster than expected. 18 trading days until the December 10th investor day: we recommend building positions ahead an event that will likely lay out the path to one day take that value even higher." Barclays — Overweight rating "Overall, a better than expected performance at Parks, the growing prospects for vaccine availability in 2021, a more normal pipeline of content for the studio and DTCI, continued streaming growth and a slightly better than expected cord cutting and advertising trajectory continues to support the overall valuation story. However, set up going into the investor day next month is quite different vs last year. With Disney stock being close to all time highs, ~ $125bn of value being embedded for its streaming business, and a likely meaningful pick up in investments next year and beyond, the stock may consolidate a bit into the event." Deutsche Bank — Buy rating "Management did not mince words on Thursday afternoon's conference call, indicating that they would discuss their specific plans in more detail at the December Analyst Day, but that Disney will 'invest heavily into DTC and shift away from linear networks'. This is consistent with the thesis behind our recent upgrade of Disney; we believe management's message will be that the company is building a very large, global, vertically integrated DTC entertainment company. We believe most of Disney's investors want management to invest aggressively into the DTC growth opportunity and will be supportive." JPMorgan — Overweight rating "While there is some concern on churn ahead for Disney+ as we anniversary the launch date (11/12/19) and potential loss of Verizon promotional subs (~7m), we see the entrance into Latin America next week as a large opportunity (15m to 20m subs over time), which should fuel subscriber growth along with the robust content slate in FQ1 planned for Disney+." Guggenhiem — Buy rating "We highlight management's view that Hulu+Live represents a compelling, Disney-owned solution for cord-cutters looking to access sports content via streaming. We have previously noted the potential that a direct-to-consumer, full ESPN offering could be part of the company's expanded streaming plans set to be unveiled on 12/10 (link). However, this commentary would indicate that management intends to keep distribution of the broad ESPN network family exclusively within broad pay-TV bundles." Moffett Nathanson — Neutral rating "As proponents of Disney's aggressive push into direct-to consumer initiatives, we used the imagery of Disney "building a lifeboat" to argue their DTC efforts are big enough and sturdy enough to prosper through and benefit from the ongoing shifts in consumer behavior. By all measures, even the most bearish Disney analyst has to admit that the ramp of Disney+ from zero to 73.7 million subscribers in less than a year is a magnificent and thesis changing accomplishment. As long-time believers in the magical qualities of Disney's brands, content and execution, the launch of this service exceeded our wildest imaginations." — 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.)

Wall Street just got even more bullish on media giant Disney following its strong quarterly report that showed resilient streaming growth amid the pandemic.

RBC Capital Markets upgraded Disney to outperform from sector perform and raised its price target on Disney from $135 to $170 per share, highest on Wall Street.

Three other firms also hiked their price targets: Goldman Sachs to $156 per share, Bank of America to $166 and BMO Capital Market to $165.