JPMorgan trims Disney’s price target, cites higher direct-to-consumer losses
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October 4, 2022
Business
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Disney ‘s upside could be capped as the entertainment company faces higher potential losses in some segments. Analyst Philip Cusick trimmed his price target on the stock to $145 from $160 a share in a note to clients Tuesday, citing adjustments to operating income for the company’s parks and entertainment segment and higher losses in its direct-to-consumer business. “While we like Disney shares today after the recent market downturn, we would be more excited to buy following F4Q results given potential commentary for higher-than-Street OI losses for 2023 and 2024 in DTC,” Cusick wrote. Momentum in Disney’s theme park and experiences business remains strong but recent closures as Hurricane Ian ripped through Florida could contribute to a $100-million hit to operating income in the fourth quarter. The segment may also come under pressure amid a slowing macro environment. In Disney’s direct-to-consumer business, Cusick now anticipates $2.8 billion worth of losses in 2023 given higher content amortization. That’s up from the bank’s previous $2.53 billion estimated loss and the $1.42 billion estimated loss from the Street. “While we are encouraged that DTC OI losses will peak in F4Q22, we expect losses to come down slowly and believe Street OI estimates for F2023 are too optimistic as new content amortization is ramping to a full run-rate and the benefit of the ad-supported tier is unlikely to provide an immediate lift to OI/ subs in 1H23, despite the Dec’22 Disney+, Oct’22 Hulu, and Aug’22 ESPN+ price increases,” he said. To be sure, the bank still views shares of the entertainment stock as attractive for long-term investors with Cusick reiterating his overweight rating. The fresh price target suggests a potential 49% rally for shares in the near term. — CNBC’s Michael Bloom contributed reporting
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