The entertainment company’s fiscal third-quarter results exceeded all expectations, aided by a rebound in its theme park business. Disney reported earnings per share of 80 cents on revenue of $17.02 billion. Refinitiv polled analysts expected earnings per share of 55 cents and revenue of $16.76 billion.
In a note to clients, KeyBanc analyst Brandon Nispel, who has an overweight rating on the stock and a $225 price target, said the report hit all the right notes to boost the share price.
“We believe sentiment and expectations were low heading into F3Q21, but we expect Disney+ subscriber growth (primarily internationally) and positive Parks EBITDA to improve sentiment in the coming quarters. We continue to see DIS as a leader in DTC streaming, and we believe Parks can continue to recover despite rising COVID concerns, resulting in a very attractive growth profile worthy of a premium valuation.”
In premarket trading, Disney’s stock was up about 5% to around $188 per share. Following a strong 2020, the stock has struggled this year. Through Thursday, the stock was down 1% year to date, compared to an 18% gain for the S&P 500.
Analyst Michael Nathanson of MoffettNathanson, who has a neutral rating on the stock and a price target of $185 per share, believes the quarter demonstrated that Disney will return to being a major profit maker in the near future.
“It is crystal clear that Disney’s domestic theme parks – the core engine of Disney’s near-term EPS recovery – are in an incredibly strong position to boomerang higher in the coming quarters as park demand returns closer to pre-pandemic levels.” We also believe that [direct to consumer] losses, which have continued to surprise to the upside due to the strength of Hulu advertising, have likely peaked,” Nathanson wrote in a client note.
Nathanson, on the other hand, expressed reservations about the stock’s valuation.
Here are some of the other top analysts’ thoughts on the quarterly report.
Barclays – Overweight, with a price target of $210 up from $200.
“Despite a lack of international visitors (who tend to spend more per capita), the strength in park attendance and spending bodes well for the coming quarters, Covid permitting. Despite retail disruptions and a lack of theatrical releases, F′21 is on track to be the most profitable year for Consumer Products [operating income] since 2016.”
Bank of America – Buy, target price of $223
“We believe that the majority of startup costs have now been baked into the current [Parks, Experiences, and Consumer Products segment] expense run-rate, which should allow for further operating leverage as attendance grows.”
Goldman Sachs – Buy, with a price target of $218 up from $215.
“The headline beat was total Disney+ subs of 116 million, which was higher than the consensus of 112 million and the [Goldman Sachs estimate] of 111 million, and ahead of media reports that implied the sub base was just above 110 million late in the quarter (see our preview). Another encouraging data point, in our opinion, was the domestic Park business’s return to profitability.”
Morgan Stanley rates it as overweight, with a $210 price target.
“While the delta variant represents a new near-term risk, a strong US consumer is expected to last into 2022, and Disney’s strength in IP and Parks’ investment in tech reinforces our confidence in this important earnings driver.”
Wells Fargo – Overweight, price target raised from $209 to $216.
“Disney+ subscriptions came in ahead of expectations (again) for a pretty strong beat in what was supposed to be a wash quarter” (again). DTC’s momentum appears unstoppable.”
Cowen – Market perform with a price target of $147.
“The [direct to consumer] business appears to be accelerating toward profitability ahead of management’s expectations, but Disney’s Linear Networks margin deterioration is troubling.”
Atlantic Equities – Overweight, with a price target of $219, down from $222.
“We see a significant runway of growth as more markets are launched and the pace of content releases accelerates, but we are concerned that existing markets may already have high levels of Marvel and Star Wars fan penetration.”
UBS – Buy, price target increased to $220 from $215.
“Commentary on lower churn and growth in core markets despite recent price increases reinforces our belief in [long-term direct to consumer] pricing power. At the same time, we anticipate rising attendance and profitability in the parks business at the end of the year, which will likely provide a further boost to investor sentiment.”
Evercore ISI – Outperform, target price of $210
“We remain optimistic here, as Disney has established itself as a recovery play (in Parks) and a structural COVID winner, as evidenced by the +110M direct-to-consumer (DTC) subscribers accumulated since the start of CY20.”
Guggenheim – Buy, target price of $215
“In the coming quarters, we expect content-driven [direct to consumer] momentum and consumer demand for parks and products to drive continued operating improvements.”
Needham is a hold with no price target.
“What we liked best about DIS’s June quarter was its [direct to consumer] metrics, which included: a) DTC Revs increased by 57 percent year on year to $4.3 billion, and DTC EBITA improved by 53 percent year on year to a loss of $293 million.”
Analyst Jason Bazinet raised the stock from neutral to buy in a note to clients Thursday evening, saying that concerns about new digital business regulations in China, as well as negative headlines about workplace issues, are more than priced in.
According to the note, “based on our scenario analysis, we believe that the current concerns about Blizzard’s execution and China regulatory risk are more than priced into ATVI’s equity at current levels, presenting investors with a buying opportunity.”
Since the end of June, the stock has dropped more than 10% as the company has been chastised for an allegedly hostile work environment.
The state of California is suing the company for alleged violations of state employment law, alleging a “frat boy” culture. Last month, employees staged a walkout.
The company is now making personnel changes at the highest levels, and Citi believes Activision Blizzard will not suffer long-term brand damage as a result of the scandal.
“While we recognize that Blizzard’s execution on its pipeline of games may be impacted,” the note said, “we do not believe that the negative workplace perception portrayed in the press has resulted in any impairment to Blizzard’s underlying IP and ultimately expect that the company will be able to execute on its pipeline of game releases over the next 12-18 months.”
Despite the upgrade, Citi reduced its price target for Activision Blizzard from $110 to $105 per share. The new target is 23% higher than the stock’s closing price on Thursday.
Palantir shares, valued at an estimated $139 million based on the stock’s closing price of $24.89.
Palantir shares were purchased by the innovation investor through six different funds:
ARK Innovation ETF has a total of 2,295,428 shares.
ARK Genomic Revolution ETF has a total of 1,727,500 shares.
ARK Autonomous Technology & Robotics ETF has 559,054 shares.
ARK Fintech Innovation ETF has 370,643 shares.
ARK Space Exploration & Innovation ETF has 61,748 shares.
Palantir now accounts for approximately 2.67 percent of ARK Innovation and is the fund’s 15th largest holding as of Friday.
The company exceeded Wall Street’s quarterly revenue expectations; revenue increased 49 percent year over year for the second quarter in a row. On Thursday, the stock increased by 11.4 percent.
Palantir is well-known for large government contracts with agencies such as the Defense Department and the intelligence community, but the company is looking to diversify its business with more commercial clients.
Wood stated in February that Palantir’s CEO’s comments about aggressive future investment were “music to our ears.”
“That is precisely how we invest. We want our companies to make aggressive investments. We don’t want to make money right now,” Wood said.