It's natural and ultimately healthy to see analysts chime in with opposing views of a particular investment. We saw that on Friday with dissenting views on Walt Disney (DIS 0.18%). Guggenheim is downgrading the stock on the final trading day of the week. J.P. Morgan is also chiming in with an update, continuing to tap Disney as its top pick in the media industry.
Who is right? One trait of successful investing is being able to see both sides of an investing story. Let's take a closer look at the two diverging updates from leading Wall Street pros.
Image source: Disney.
Down with the mouse
Michael Morris at Guggenheim is downgrading Disney stock from buy to neutral. He's also lowering his price target on the shares from $205 to $165, translating into just 6% of projected near-term upside in the shares. Morris is concerned about near-term challenges to the bottom line.
The slowdown in growth for the Disney+ streaming service is well known, and it's a key factor in keeping the blue chip trading a lot closer to its 52-week low than its high these days. The analyst is concerned that Disney plans to increase its programming costs by as much as 32% -- or $8 billion -- will weigh on Disney's overall profit growth if the content push doesn't translate into accelerating growth at Disney+ this year. Disney has said in the past that it doesn't expect Disney+ itself to be profitable until fiscal 2024. One positive point is that he does see 10 million in net adds for Disney+ for the fiscal first quarter that ended last month, ahead of the 6.8 million analyst consensus.
He's also concerned about the profit growth at its theme parks. Disney's gated attractions recently returned to profitability, but challenges remain. The omicron-fueled surge in COVID-19 cases has added uncertainty to both its theme parks and its cruise ships. From attracting visitors to keeping its own cast members healthy and its attractions fully staffed, it's not easy running a tourist business with so many question marks in the air.
The mouse strikes back
On a more upbeat note, Alexia Quadrani at J.P. Morgan continues to be a believer in the pixie dust of Disney stock. She is reiterating her overweight rating for the shares, and has a $220 price target that suggests 42% in upside for the stock.
She accepts that the current outlook is challenging. The COVID-19-related challenges to Disney's legacy businesses will leave a mark. Quadrani sees a light first half of 2022 in terms of net adds for the Disney+ platform. However, she does see the streaming service picking up in the latter half of this year as well for fiscal 2023. She feels Disney's iconic theme parks can return to pre-COVID margin levels by fiscal 2023. In a world where content is king, Disney's catalog of intellectual property reigns as the Lion King of the entertainment industry. As the COVID-19 crisis eventually passes and consumer interactions start to pick up it should be fertile soil for the Disney flywheel. Disney remains her top pick in the media space.
In the end it's great to see two analysts diametrically opposed when it comes to the House of Mouse. It's encouraging for both camps, as it provides upside or downside if one is able to sway the other side. Uniformity is dull and not educational. Disney remains the bellwether for entertainment stocks, and while the bullish stance has eventually won out in the past it doesn't mean that there won't be a few hiccups along the way.
