Walt Disney (DIS -0.04%) keeps climbing out of the doghouse. Shares of the entertainment giant were moving higher Monday after Disney got an analyst upgrade from Barclays. Analyst Kannan Venkateshwar raised his rating on Disney to overweight and lifted his share price target to $135.
Venkateshwar anticipates positive revisions to earnings estimates and believes the company is still in the early stages of its turnaround, which comes as returned CEO Bob Iger spent much of the last year restructuring the company to better take advantage of growth in the streaming era.
The upgrade, which helped push the stock to a new 52-week high, was the latest bullish signal for Disney and the stock price is now up roughly 50% from its 52-week low. However, there are several reasons to believe the stock can continue climbing from here. Let's look at three of them.
Image source: Disney.
1. Disney's momentum is real
It's easy to talk about a turnaround, but for many companies, they don't materialize. That's not the case for Disney as the company is delivering real results that show the business is fundamentally improving.
There's no question that Disney has struggled with the transition from streaming. Its once-highly profitable linear media business has shrunk and the streaming side of the business has yet to pick up the slack. However, that seems to be changing.
Disney set a target several months ago of reporting a profit in its direct-to-consumer segment in the fourth quarter this year, which ends in September, and it's on track to do so. In the most recent quarter, it narrowed its loss in streaming from $984 million to $138 million, showing it's made significant strides toward streaming profits.
At the same time, the company is tapping new revenue streams, including the newly announced joint venture sports-focused streaming service with Warner Bros. Discovery, and Fox, and the launch of the flagship ESPN streaming service, which is now set for the fall of 2025.
Iger is also making moves to unlock value from Disney's legacy assets, including merging its Indian TV and streaming assets with Reliance Industries in an $8.5 billion deal.
2. The proxy fight is good for Disney shareholders
For the past several months, Disney has been embroiled in a high-profile proxy fight with activist investors, the most prominent of which is Nelson Peltz's Trian Capital, though Blackwells Capital is also agitating for change. Disney has pushed back against Peltz, calling him disruptive and dismissing his ideas, but the attention from activists seems to be a positive for the stock as they are essentially arguing that Disney is undervalued based on the company's potential.
On the surface, that looks true. Disney is the best-known entertainment brand in the world. Its empire spans the globe and includes television (children's, sports, broadcast, and entertainment), multiple film studios, theme parks, cruise ships, and consumer products, and the company's struggles in recent years are clear.
The proxy fight raises the stakes for Iger's success and has forced the company to make the case that its turnaround strategy is the best for the business.
We'll soon learn the results from the shareholder meeting next week, but the attention from activist investors seems to be a positive for the stock, even if it's a thorn in the side of Disney management.
3. Consumer demand is on the rise
In addition to internal challenges with the business, Disney stock also fell in 2022 and 2023 because of fears of a recession. Disney is one of the biggest consumer discretionary businesses in the world, and consumers are less likely to visit one of its theme parks, buy its toys, or subscribe to one of its streaming services when times are tough.
However, forecasts of a recession in the U.S. have gone down substantially in recent months, and consumer sentiment is on the rise. That favors a continued recovery in Disney stock and support for its business.
Even as its media business has been challenged, its theme parks continue to see record traffic levels and have been able to pass along price increases. Disney also said it would nearly double capex spending on its theme parks over the next decade to $60 billion, a sign of increased confidence in that business.
A stronger economy also makes it more likely that the company's password crackdown on its streaming services will pay off as it adds new subscribers.
It's the start of a new bull market, and if the economy continues to expand, as looks increasingly likely, Disney should be a major beneficiary.
