Disney's Streaming Gains, Park Strength, Cash Flow Drive Analyst Optimism - Walt Disney (NYSE:DIS)

BofA Securities analyst Jessica Reif Ehrlich maintained a Buy rating on Walt Disney Co (NYSE:DIS) with a price target of $140 on Wednesday.

Disney reported a solid fiscal second quarter, with revenue and operating income above Ehrlich’s expectations. Total fiscal second-quarter revenue grew 7% to $23.6 billion (versus Ehrlich’s $23.4 billion estimate), and operating income increased 15% to $4.44 billion (versus Ehrlich’s $4.13 billion estimate).

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Adjusted EPS of $1.45 was well above Ehrlich’s forecast of $1.25. By segment, Entertainment operating income was $1.26 billion (versus Ehrlich’s $1.02 billion estimate), Sports operating income was $687 million (versus Ehrlich’s $700 million estimate), and Experiences operating income was $2.49 billion (versus Ehrlich’s $2.41 billion estimate).

Free cash flow of $4.9 billion was well above Ehrlich’s $2.3 billion estimate. Disney raised its fiscal 2025 outlook to 16% adjusted EPS growth (to $5.75) from high single-digit adjusted EPS growth, which is encouraging considering recent macro volatility. For the fiscal third quarter, management now expects a modest increase in Disney+ subscribers compared to the second quarter.

Within Entertainment, Linear Networks operating income was $769 million (versus Ehrlich’s $636 million) as a decrease in marketing costs primarily attributable to fewer new shows than the prior year was able to offset lower domestic advertising and flattish affiliate revenue. DTC operating income of $336 million was above Ehrlich’s $280 million estimate reflecting revenue growth of 8% (versus Ehrlich’s 11% estimate) driven by an increase in subscription revenue due to higher effective rates and more subscribers partially offset by an unfavorable foreign exchange impact and the absence of Star India subscription revenue.

Content Sales/Licensing operating income was above Ehrlich’s estimate at $153 million (versus $100 million estimate) reflecting revenue of $2.1 billion (versus Ehrlich’s $1.8 billion estimate) driven by higher TV/VOD distribution and an increase in home entertainment distribution results.

Within Experiences, fiscal second-quarter Experiences revenue was $8.89 billion (versus Ehrlich’s $8.72 billion estimate), driven by 9% growth in domestic revenue and a -5% decline in International revenue. Experiences operating income increased by 9% Y/Y (+13% domestic operating income and -23% international operating income) due to growth at domestic parks and Disney Vacation Club and Cruise lines partially offset by lower attendance and increased costs at Shanghai and Hong Kong resorts.

In Domestic Experiences, higher volumes were attributable to increased passenger cruise days and theme park attendance. In contrast, the increased guest spending was due to higher spending at domestic theme parks.

In the Sports segment revenue was +5% Y/Y at $4.53 billion (versus Ehrlich’s $4.46 billion estimate) while operating income decreased to $687mn (versus Ehrlich’s $700 million estimate). Operating results domestically were driven by an increase in production and programming costs primarily attributable to airing three additional College Football Playoff (CFP) games, advertising revenue growth due to the rise in rates and average viewership, and a modest increase in affiliate revenue reflecting higher rates, offset mainly by fewer subscribers.

Price Actions: DIS stock was up 10.7% at $102.09 on Wednesday.

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