Jefferies Initiates Coverage on Walt Disney Company (NYSE:DIS)

Jefferies has started coverage on Walt Disney Company (NYSE:DIS) with a hold rating and a target price of $120. The firm cites positive prospects in streaming profitability, although challenges remain in the parks division.

Streaming Profitability

Jefferies projects that Disney's direct-to-consumer business margins will improve from 1% to over 10% by 2027. Factors contributing to this growth include:
– Bundling initiatives
– Pricing adjustments
– Increased advertising revenue
– Disciplined content costs

Streaming, excluding Hulu Live, is estimated to account for about 70% of Disney’s operating income growth through fiscal 2026.

Advertising Strategy

Disney’s advertising platform through Hulu is anticipated to generate roughly $3 billion in revenue by 2024. This positions Disney as a significant player in connected TV (CTV) advertising, allowing it to narrow the revenue gap with Netflix (NASDAQ:NFLX).

Parks and Experiences Challenges

Despite positive streaming forecasts, Disney's Parks and Experiences segment—which contributes 59% of its operating income—faces challenges due to slower admission growth and heightened competition from Universal's upcoming Epic Universe Park set to open in 2025. Jefferies highlighted a potential overreliance on price increases to spur growth, which may be affected by shifting consumer sentiment.

Risks and Current Performance

The key downside risks in Jefferies' target include:
– Challenges in achieving streaming profitability
– Ongoing weakness in the Parks division

Despite these concerns, Disney stock has seen a gain of approximately 30% this year.