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In the report, the analysts assessed the opportunities and challenges ahead as Disney executes a more balanced content monetization strategy, implements cost initiatives, and navigates macro uncertainty.
“We see shares as compelling here thanks to 1) strong adjusted EPS growth ahead (+20% F22-F26E CAGR), 2) a 25%+ ROIC Parks business that generates compelling growth through cycles, that we expect to represent the majority of its segment EBIT for years to come, and 3) a Media business that we believe is under-earning and under-valued,” they wrote.
Morgan Stanley’s adjusted EPS estimate for DIS was raised by 3-5% in FY24/25 as they “layer in non-content cost savings of $2.5bn through FY24 and bend the content cost curve modestly in FY24-FY26, partially offset by lower DTC revenue expectations.”
The analysts stated that there are likely additional cost opportunities to explore in the years ahead beyond the $5.5 billion.
“These cost savings create some cushion to what is likely a still challenging advertising market near-term for both linear and streaming,” they added.
The analysts also said there are lower expectations for Disney Plus, but near-term growth is likely to be challenging.
“As recently as last summer, consensus expectations had Disney Plus (core) F24 net adds of 25mm, ending that year with 160mm global subscribers. In 2023, Disney shares have absorbed the most dramatic negative revision to Disney Plus expectations since the service launched,” they concluded.
