BofA Securities analyst Jessica Reif Ehrlich reiterated a Buy rating on Walt Disney Co (NYSE: DIS) with a price target of $120.
Ehrlich maintained a positive outlook on Disney following its mixed fiscal fourth-quarter results, focusing on its guidance for fiscal 2025 and beyond.
Disney's fiscal fourth-quarter revenue grew 6.3% year-over-year to $22.6 billion, slightly above Ehrlich's forecast of $22.3 billion. Operating income (OI) increased by 16% to $3.66 billion but fell below her estimated $3.70 billion. Adjusted EPS came in at $1.14, surpassing the analyst's forecast of $1.11.
By segment, Entertainment OI reached $1.07 billion ($1.06 billion expectations), while Sports OI came in lower at $929 million versus the estimated $966 million. Experiences OI matched the forecast at $1.7 billion.
Disney provided its initial guidance for fiscal 2025, targeting high single-digit growth in adjusted EPS, estimated between $5.26 and $5.41, up from the fiscal 2024 base of $4.97. Ehrlich expects double-digit OI growth in the Entertainment segment, 13% OI growth in Sports, and 6-8% growth in Experiences.
The company aims for $15 billion in operating cash flow, with $8 billion allocated for capital expenditures, implying about $7 billion in free cash flow. Additionally, Disney plans to increase dividends in line with earnings growth and conduct $3 billion in share repurchases. For fiscal 2026 and 2027, Ehrlich forecasts double-digit EPS growth, driven by improved margins in the streaming segment and overall earnings expansion.
In the Entertainment division, Linear Networks OI was lower at $498 million, impacted by a decline in domestic revenue due to non-renewed carriage agreements and reduced advertising income. Conversely, Direct-to-Consumer (DTC) OI exceeded estimates, reaching $253 million, boosted by a net increase of 4.4 million Disney+ subscribers and higher subscription revenue from recent price hikes.
Content Sales and Licensing outperformed expectations with $316 million in OI, fueled by strong quarterly theatrical releases. Experiences revenue reached $8.24 billion, driven by 3% domestic growth, although international revenue declined by 5%. Ehrlich noted increased costs from inflation and technology investments, which slightly compressed margins.
The Sports segment reported flat year-over-year revenue of $3.91 billion, slightly below the $3.98 billion estimate. Operating income declined by 5.3% to $929 million due to lower affiliate revenue linked to decreased subscribers. Higher advertising revenue and increased programming costs partially offset this decline.
Ehrlich valued the stock at 22 times her calendar 2025 adjusted EPS estimate. The premium reflects Disney's strong asset portfolio, including leading content and top-tier theme parks. Ehrlich pointed to two critical near-term catalysts: profitability improvements in the DTC segment and a recovery in the parks business, justifying the multiple valuations in line with Disney's historical premium.
Walt Disney stock gained 21% year-to-date. Investors can gain exposure to the stock through The Communication Services Select Sector SPDR Fund (NYSE: XLC) and SPDR Dow Jones Industrial Average ETF (NYSE: DIA).
Price Actions: DIS stock is up 6.45% at $109.34 at the last check on Thursday.