A couple of analysts have cut their price targets on Disney stock due to lower expectations on streaming subscriber growth. Should investors be concerned?
Last month, Steven Cahall, an analyst at Wells Fargo,lowered his Disney stock target price from $216 to $203. On that same day, shares fell by nearly 2%. More recently, Barclay’s research teamdowngradedDIS to hold, reducing the proportion of sell-side bulls to 79% of the coverage universe.
Today, we discuss Wall Street’s caution towards this stock that has struggled to gain traction lately, and whether investors should be worried.
The reason for the price target cuts
Disney’s streaming business has been the main factor behind the recent price target cuts. Estimates for the number of Disney+ subscribers for the foreseeable future have dropped. Wells Fargo’s analyst has reduced his projected 13.5 million new adds this quarter to only 2 million, while also slashing 2024 estimates from 256 million to 236 million.
The analyst offered the following insight:
“Recent commentary around F4Q21 Disney+ net adds has cast a spotlight on what it will take for DIS to reach FY24 subscriber guidance. We think investors now have some causes for concern. […] Our price target falls as we reset our sub numbers.”
CEO Bob Chapek’s forecast
According to the company's CEO Bob Chapek, subscriber growth this quarter is unlikely to meet the market’s aggressive expectations. Bob also said that some of the reasons for the slowdown in growth include Hotstar's low penetration in India and difficulties in finding partners in Latin America.
Despite short-term challenges, Disney has yet to change its subscriber projections for 2024, currently set at 230 million to 260 million members.
What's happening with DIS?
While the pandemic dragged Disney stock early last year due to the closing of theme parks and movie theaters, shares still climbed in 2020. The company managed to grow its nascent streaming business, which helped to fuel investor sentiment.
However, the stay-at-home habits have started to faze, and Disney is caught between a rock and a hard place. The company’s operations have not fully returned to normal levels (e.g., cruise ships are only now starting to sail again), while the buzz around the streaming segment has been losing steam.
Since the beginning of 2021, DIS share price has remained stuck in the $170s, with a Q1 rally proving to be short lived.
What Wall Street says
Despite the recent price target revisions, analysts still think that DIS is a buy,according to TipRanks. Out of the 19 professionals covering the stock, 15 are still bullish, while only 4 have a neutral rating. None of the analysts recommend selling the stock.
The highest price suggested by analysts is $263, while the lowest is $175. At the average price target of $215, Wall Street collectively hints at upside potential of over 25% from current levels.
Our take
We maintain our opinion that DIS shares still have room to rise in the next several months.
Disney continues to be a great company with one of the best content libraries, plenty of opportunities in streaming and an imminent rebound in parks, hotel, and cruise activity. On Disney+, despite the reduced subscriber number expected for this quarter, Disney could still deliver its longer-term goal by 2024.
Once short-term challenges are left behind, we think that the market will once again turn to DIS for an investment opportunity – especially given current prices that are a substantial 15% below all-time highs.