BofA sees 42% upside in Disney, 'firing on all cylinders'
With Disney's (DIS -4.5%) earnings in the rear-view mirror, BofA says that a rampaging recovery in the Parks unit combined with an upcoming ramp to significantly higher content output has Disney "firing on all cylinders" in its new fiscal year.
Following a two-year drag from COVID-19, theme parks came "roaring back" in the first quarter, and operating income was almost back to Q1 2020 levels (in other words, pre-pandemic), the firm notes.
Disney's parks division in particular is encouraging for multiple drivers, analyst Jessica Reif Ehrlich notes: First, Disney was able to implement multiple technology enhancements thanks to park closures - which will lead to "increased capacity, decreased employee headcount and increased margins." Second pent-up demand after such major disruptions has historically led to "multi-year cycles of revenue growth."
New features are adding to revenue growth, including its Genie+ replacement for FastPass as well as new attractions like the Galactic Starcruiser and Ratatouille Adventure. And in time, it will be buoyed by the return of international visitors (who make up some 20% of total visitors) and cruise ships (with new ships coming on line in fiscal 2022, 2024 and 2025).
On content, there's "finally" a ramp up coming in the second half of 2022 - and that stronger slate will go to a wider group this year, with Disney+ launching in 42 new countries and 11 new territories covering 70 million broadband households this summer. Disney+ expects to hit its long-term goal of 230 million-260 million subscribers even without an extension of an Indian Premier League contract (though those rights for 2023-2027 are currently being negotiated). And a long-term contributor to 2024 guidance will come from the new plans for an ad-supported tier of Disney+.
With "a period of strong earnings growth" ahead, BofA has maintained its Buy rating and $191 price target, implying 42% upside.
In Disney's earnings call, CEO Bob Chapek noted the parks saw really strong domestic demand mitigated by a "lagged" return from international markets, unsurprising because of the long booking time for global trips.