Despite a strong performance in the overall stock market, Disney shareholders have experienced a disappointing year. The stock has remained stagnant, leaving investors eager for signs of a recovery.
All eyes now turn to the upcoming earnings report for the June quarter, which is scheduled to be released after the close of trading on Wednesday. Hopes are high that this report will provide some much-needed positive news.
However, Disney is facing numerous challenges. Its streaming business has underperformed, and recent box-office sales for its films have been weak. One such example is the significant failure of “Haunted Mansion.” Additionally, ESPN and other cable television channels are struggling due to the rise of cord-cutting and other issues.
According to Wall Street analysts tracked by FactSet, the consensus estimate is that sales will reach $22.5 billion for the quarter, representing a 4.6% increase compared to the previous year. Adjusted profits are expected to reach 97 cents per share, a decrease from $1.09 in the same quarter last year.
The Media and Entertainment division is forecasted to see a 1.6% increase in revenue, reaching $14.3 billion. This includes an estimated 13% growth in direct-to-consumer media revenue, including Disney+. However, Linear Networks (the cable channels) are expected to face a 6.3% decline, bringing their revenue down to $6.7 billion.
As for the Parks, Experiences, and Products segment, analysts predict revenue of $8.1 billion, representing a 10% increase. Within this segment, the parks and experiences business is anticipated to grow by 10%, although consumer products are projected to decrease by 7%.
Disney Stock Faces Challenges as Analyst Lowers Target Price
Analyst Bryan Kraft from Deutsche Bank has reiterated his Buy rating on Disney stock ahead of the quarterly results. However, he has lowered the target price from $131 to $120. Kraft explains that the reduction in target price is due to lower estimates, primarily driven by decreased advertising revenue and “underperformance at the box office.” Additionally, softer theme park attendance in Orlando, Florida, has also contributed to the revised target price.
Despite these challenges, Disney stock closed at $88.13 on Tuesday, showing a 1.4% increase so far this year, while the S&P 500 has risen by 17%.
Kraft predicts that the company will lower its full-year financial forecasts, which previously anticipated high single-digit growth in both revenue and segment operating income. This adjustment is widely anticipated, and its impact is largely factored into Disney’s current stock price.
Disney faces multiple headwinds, as Kraft acknowledges. The ongoing strike by Hollywood actors and writers is causing various disruptions to the business. This includes delays in movie and TV show releases. Kraft also notes a “creative slump” at Disney, citing poor performances of recent films such as the latest Indiana Jones installment and the animated adventure Strange World.
The future of ESPN is another concern. Kraft believes that a streaming version of the service will launch by 2025 or 2026, although specific details have not been disclosed yet.
Investors are also interested in Disney’s plans for its nonsports linear channels, including ABC, National Geographic, FX, and the Disney Channel. In a recent CNBC interview, CEO Bob Iger hinted that these channels might not be core to the company’s future. Speculation has arisen that some or all of these channels could be up for sale.
Furthermore, Disney is expected to acquire the one-third stake in Hulu currently held by Comcast. Under the existing agreement between the two companies, Comcast has the right to sell its stake to Disney in January at a minimum valuation of $27.5 billion.
Overall, Disney’s potential challenges and upcoming developments have implications for its stock performance. Investors will be closely monitoring the quarterly results and subsequent announcements from the company.
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