Wall Street took a close look at Disney and Microsoft. Here's our take

Published Fri, Sep 30 20225:02 PM EDTUpdated Fri, Sep 30 20225:22 PM EDT

Wall Street put Walt Disney (DIS) and Microsoft (MSFT) under the microscope this week, and while the verdicts were mixed, we're sticking with these Club holdings for the long run. Raymond James resumed coverage on Microsoft, setting a buy rating with a $300 price target on the cloud stock, which represents a 26% upside on its shares based on Thursday's market close. Microsoft's stock closed down 1.94% on Friday, at $232.90 a share. In a separate note, Bank of America lowered revenue and earnings-per-share estimates for Disney's fiscal fourth-quarter earnings, set to release in November, on lower projected Disney+ net adds, lower content sales and licensing revenue, and theme park closures due to Hurricane Ian. Disney's stock closed out Friday down 3.2%, at $94.33 a share. While we acknowledge the macro pressures that Disney temporarily faces, we still like the underlying fundamentals of the entertainment giant. Yesterday, we even scooped up 25 shares of Disney to take advantage of an oversold market. In an uncertain economy, we're sticking with high-quality companies with brand recognition and customer loyalty — and Disney and Microsoft definitely fit the bill. Here's a deeper look at the research. What analysts say Microsoft Analysts at Raymond James said Microsoft's "long track record and breadth of product offering" position it as a competitor that can take share in the fast-growing software market, despite a slowing economy. The investment bank breaks down its thesis on Microsoft in three main points. Microsoft is strongly positioned in public cloud, gaming and digital advertising markets. The company has the ability to scale due to years of investment. The software leader can leverage existing relationships with enterprise software customers and its brand recognition. While the report acknowledged that Microsoft isn't immune to the consequences of a recession, the risk has been mitigated because enterprise customers are set to increase spending on information technology (IT). In fact, the report cites a recent Gartner survey that found 43% of chief investment officers plan to increase IT spending, compared with 17% who intend to decrease it. Disney Analysts at Bank of America lowered Disney's fourth-quarter revenue estimates to $21.7 billion, down from a previous estimate of $22.2 billion — but included a caveat that Disney's "underlying trends remain solid" in a difficult economy. The BofA research note highlighted the return of international visitors and increased theme park- and cruise ship capacity as tailwinds that could help offset slowing consumer demand. On streaming, the bank expects domestic subscriber growth on Disney+ to accelerate and believe advertising demand to be "robust." BofA retains a buy rating on shares of Disney but lowered their price objective, or an estimate of where the stock's price could be heading, to $127. In another research note, Needman set a hold rating on Disney shares. While the firm maintained its revenue estimates for the quarter at $21.2 billion, it lowered its operating income estimate by 29%, to $1.9 billion. The bank also lowered its operating earnings-per-share estimate for the fiscal fourth quarter by 45%, to $0.35 a share. Needman analysts explained they prefer to hold off on Disney until they see peak streaming spending and a return on capital from streaming investments. The Club's take While consumer demand has slowed, we are not changing our investment thesis on Disney. Theme parks are a very profitable part of the company that present a long-term opportunity, as the entertainment giant continues to monetize popular franchises like Marvel. Furthermore, the upcoming launch of the Disney+ ad-supported tier and the company's plans to incorporate ESPN into its streaming network will likely support revenue growth. Meanwhile, we like Microsoft because it has an edge in cloud computing. As companies continue to invest in cloud services, we think Microsoft's top line should continue to hold up, even as businesses tighten their budgets. While the company missed on its top and bottom lines in its fourth-quarter earnings , released Jul. 26, Microsoft's strong cloud business saw revenue climb by 20%, to $20.9 billion. Moreover, Microsoft was able to return $12.4 billion in cash to shareholders, a 19% increase year-on-year. We don't own the tech giant for its dividend, but we see its ability to deliver cash to shareholders as a testament to its overall business strength. (Jim Cramer's Charitable Trust is long MSFT, DIS. See here for a full list of the stocks.) 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A masked family walks past Cinderella Castle in the Magic Kingdom, at Walt Disney World in Lake Buena Vista, Fla.

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