Morgan Stanley analyst Benjamin Swinburne reiterated an Overweight rating on the shares of Walt Disney Company
Disney's fourth-quarter revenue increased 5% year-over-year to $21.24 billion, which missed the estimate of $21.33 billion. Earnings of $0.82 beat the consensus estimate of $0.70.
Guidance of $8 billion of FCF and $6 billion of capex implies $14 billion of CFFO, an increase of $4 billion Y/Y or 40%, says the analyst. This level of operating cash flow marks a return to FY18 levels.
Disney's $2 billion Y/Y planned reduction in cash content spend is driving this growth, with segment OI presumably delivering the remainder, the analyst remarks.
According to the analyst, Disney's new $7.5 billion cost saving target compares to $5.5 billion prior and is a combination of $4.5 billion in cash content savings and $3 billion in SG&A and other opex.
The falling cash content spending on the entertainment side combined with the continued non-content cost reductions should keep overall opex growth limited even into FY25, writes the analyst.
The analyst mentions that Disney plans a more bundled single app beta in the U.S. market later this year and full launch in the early Spring, with the ESPN flagship streaming launch having the capacity to further enhance its U.S. streaming offering.
The content sales segment is being impacted by the long production shut down which may now finally be ending, remarks the analyst. But it will take multiple quarters, in the analyst's view, for the industry to get back to a normalized production cadence.
The analyst continues to expect Experiences, led by the international parks and cruise business, to grow mid to high-single digits in FY24 and contribute about two-thirds of consolidated segment OI.
Overall, the analyst sees a high ROIC and high growth business in Experiences as undervalued in DIS shares today and a Media business that is both under-earning and undervalued.
The analyst also looks forward to the continued evolution of Disney's streaming offerings and the return of its dividend.
Price Action: DIS shares are trading higher by 6.4% at $89.91 on the last check Thursday.
