Wall Street cuts Disney targets on earnings miss but sees the company as a long-term winner

Published Wed, Nov 9 20226:25 AM ESTUpdated Wed, Nov 9 20226:49 AM EST

Disney's latest earnings report fell short of Wall Street's expectations on both profit and revenue due to weakness in key business segments including parks and streaming, sending shares down 8% in premarket trading. While a slew of analysts lowered their price targets and future expectations for Disney earnings, many remained bullish on the company, insisting that it's poised to be a winner in the future of streaming. " While the macro environment presents challenges, we still view Disney as best positioned for the transition to a streaming future," UBS analyst John Hodulik said in a Wednesday note. The firm kept its buy rating on shares but lowered its price target to $122 from $135. Shares of Disney have shed about 35% year to date. Disney+ outlook One of the reasons that analysts remain positive on Disney is that management reaffirmed its expectation that Disney+ will reach profitability in 2024, even though the direct-to-consumer business lost $1.47 billion in the quarter. "Our call on Disney has been that we will feel better about shares once consensus DTC OI losses catch up to our numbers — this seems much more likely after Tuesday's call, and we like the stock into DTC improvements through F23," JPMorgan analyst Philip Cusick wrote in a Wednesday note. The firm reiterated its overweight rating but trimmed its price target to $135 from $145. Still, Cusick said the firm is "buying on weakness" in the stock. Until the division reaches profitability, there could be more pain for investors up to the turning point for the company. "Disney reiterated that peak losses culminate in F4Q22, and expect improved profitability beginning in F1Q23," Goldman Sachs analyst Brett Feldman wrote in a Wednesday note. "We continue to expect that Disney+ will reach its peak year of losses in fiscal 2022, and update our FY2023 DTC OI estimate from -$2.2bn to -$3.1bn (vs. -$4.0bn in FY2022)." Goldman Sachs also maintained its buy rating but cut its price target to $118 from $137. Parks look strong Elsewhere in the report, the parks segment showed signs of strength – it beat expectations on revenue for the group, which includes the theme parks, resorts, cruise line and merchandise business. Still, the segment's operating income fell short of estimates, but analysts attributed that to seasonal factors such as inflation, Hurricane Ian and Covid measures. "Clearly the revenue post-COVID came back before costs, and we lower margins in F23," Cusick wrote. "Paris trends were strongly driven by the 30th anniversary and opening of Avengers Campus while Shanghai results were challenged due to persisting COVID headwinds." Going forward, however, management reiterated that parks demand remains strong with no signs of slowing consumer trends due to a weaker macro backdrop. Not all positive To be sure, not all analysts saw the results as positive. Barclays, which has a neutral rating on shares of Disney, sees shares falling further. "Revenue and OI guidance next year implies profitability across most Disney segments could be worse than expected, in some cases materially so," analyst Kannan Venkateshwar wrote in a Wednesday note. "Streaming guidance is also likely to be tough to get to without tradeoffs," the Barclays note said. "Given this backdrop of falling estimates and low visibility, Disney's valuation has downside in our view." — CNBC's Michael Bloom contributed reporting