Disney Parks May Have Even More Upside, Says JPMorgan

JPMorgan's Alexia Quadrani is more bullish on Walt Disney Co DIS's Parks, citing new domestic demand-based pricing initiative and Shanghai opening in June.

The analyst said the recent shift to dynamic pricing given the strong attendance and demand can lead to further margin expansion.

"We believe the parks also have the potential to continue expanding margins following ~200bps of expansion in F2015, and we look for ~150bps expansion in F2016 at the domestic parks," Quadrani said in a note to clients.

The new pricing structure applies only to single-day tickets. At Disneyland, single-day "value" tickets for Monday-Thursday when schools are in session cost $95; "regular" tickets for most weekends and summertime weeks cost $105; and "peak" tickets for most of December, spring break weeks, and July weekends cost $119.

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Meanwhile, at Disney World, prices are more complex as they vary by park. For the most popular park, Magic Kingdom, single-day "value" tickets are $105, "regular" tickets are $110, and "peak" tickets are $124.

"We believe these prices increases are not likely to lessen demand and may help with overcrowding at the parks during busy seasonal periods," Quadrani noted.

However, the analyst is more conservative on international parks given the continuing weak trends at HK/Paris and the uncertain initial impact from Shanghai after its June opening.

Longer term, the analyst sees notable opportunity for Disney to raise prices for multi-day park passes as demand grows following the Avatar opening in Animal Kingdom. In addition, Star Wars Land in Hollywood Studios and Disneyland should be an additional profit driver down the road.

Quadrani rates Disney Overweight with an $118 price target.