Walt Disney Co (NYSE:DIS, ETR:WDP)'s Experiences segment, which includes the entertainment giant’s Parks and Cruises, remains a key long-term driver for the company despite concerns of a near-term slowdown, analysts at Bank of America believe.
“Disney's Experiences segment has been in focus since the company discussed a normalizing demand outlook and gave a lighter-than-expected fiscal Q3 operating income guide during last quarter's earnings,” the analysts wrote in a note to clients.
“Growing pre-opening costs (related to cruise ships and a new island), certain one-items and normalization of post-Covid hyper demand are driving a weaker than anticipated fiscal 2024 second half outlook.”
The bank’s analysts are bullish on Experiences given the business continues to grow and generate steady profits, profit contribution has broadened in Parks as international park margins are quickly improving, and a $60 billion investment over the next decade indicates Disney’s confidence in the business.
They also pointed out that Cruises, while relatively small, is growing faster than Parks and the addition of three new cruise ships in the next 18 to 24 months would double capacity.
Further, the analysts pointed out that Disney’s content slate is showing signs of a turnaround.
“Since returning as CEO in November 2022, Bob Iger made two critical structural changes in an attempt to improve Disney's content offering: 1) a restructuring of divisions to return control back to creative executives and 2) putting an emphasis on quality content over quantity,” they wrote.
“There are indications that the turnaround may have begun as Inside Out 2 surpassed $1 billion at the global box office in its first three weeks.”
They also highlighted Disney’s attempts to strike a better balance between originals and leveraging intellectual property in its studio.
“Excitement around upcoming titles including Deadpool & Wolverine, Moana 2 and Mufasa: The Lion King give us cautious optimism that Disney's studio will continue to improve,” they wrote.
They reiterated their ‘Buy’ rating and $145 price target on Disney representing an upside of almost 50% from its current share price of about $97.