Walt Disney Co (NYSE:DIS, ETR:WDP) will be able to ramp up its buyback programs, grow its dividend and make new investments because of improved free cash flow, analysts believe.
UBS predicts the media conglomerate will end the 2024 financial year with US$9 billion in free cash flow rather than the US$8 billion Disney is currently preparing for.
Analysts believe the increase will be driven by better-than-expected performances in its parks division, while also receiving marginal lifts from its content and direct-to-consumer segments.
In the group’s parks segment, the Swiss bank forecasts underlying earnings will jump 12% year-on-year to US$2.3 billion in the second quarter, representing an 8% upgrade from prior estimates.
In the full year, this means UBS predicts parks will bring it US$10 billion in underlying earnings, more than a 13% jump annually.
As the conglomerate pours more cash into expanding its parks, analysts reckon underlying earnings will grow by a high single-digit or better over the next several years.
UBS believes Disney’s direct-to-consumer, which includes Hulu and Disney+, will break even by the end of the fourth quarter, with a minimum underlying profit of US$3 billion expected in 2026.
While its content division is also expected to tick into a profit, the bank thinks its entertainment division will continue to decline, albeit with parts being recaptured by the sports segment and its new bundle.
Therefore, UBS, which rates Disney a ‘Buy’, has increased its price target from US$120 to US$140, representing a 16% premium to its current market value.