Morgan Stanley says Disney can surge 35% as a strong consumer drives park revenue

Shares for Disney could see big gains going forward, according to Morgan Stanley. Analyst Benjamin Swinburne reiterated his overweight rating on Disney ahead of its earnings announcement on Wednesday. He also noted that his bull case scenario is now in play after the stock’s hot start to 2023. “After a 25% appreciation in shares YTD, we focus on the bull case from here: In our view, the recent appreciation in shares reflects two recent shifts in sentiment. First, a less bearish view on Disney’s cyclical revenue streams – primarily US Parks (~25% of F23 revenues) and advertising (15%),” Swinburne wrote in a client note on Monday. “Second, strong results and share appreciation at streaming leader Netflix (now at ~25x P/’24E EPS) has reminded investors that streaming can be nicely FCF generative at scale,” he said. Morgan Stanley has a bull case price target of $150 per share on Disney, which implies upside of 36.1% from Friday’s close. The bank’s base case target is $115, which points to upside of just 4.5%. He expects Disney Parks — which represents a major part of the company’s earnings — will have strong growth in 2023. Improving its streaming platforms’ monetization and cost efficiency is also crucial to earnings growth, said Swinburne. “The path to our $150 bull case is primarily paved by a US economy and US consumer that avoid a recession and a faster than expected ramp in Disney’s Media segment earnings (DMED),” the analyst wrote. To be sure, Swinburne slashed his Disney Plus core net adds to 1.2 million from his original 2.5 million, citing recent price hikes in the U.S. The streaming division’s estimated operating income of $5.6 billion is still below consensus, he added, but expects its losses to be partially offset by the theme park segment’s revenue. Disney shares were down nearly 1% during the premarket Monday. Shares for the company have grown more than 27% in 2023. However, they are still down 22% in the past 12 months. –CNBC’s Michael Bloom contributed to this report.

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