Stocks of Disney Have Soared This Year. Why the Rally Has Legs According to This New Bull.

The Walt Disney Co.'s stock has been a subject of considerable debate, but Barclays analyst Kannan Venkateshwar is now leaning towards the bullish side.

‍

Venkateshwar upgraded Disney's stock (DIS) from equal weight to overweight on Monday, concurrently raising the price target to $135 from $95. He believes that Disneyhas been making strides after recent setbacks and is poised to sustain this positive momentum.

‍

The run-up to an April proxy vote has seen a flurry of Disney-related developments, notes Venkateshwar. Coupled with better-than-anticipated free cash flow and earnings guidance for the fiscal year, this has instilled greater confidence among investors regarding the trajectory of earnings estimates.

‍

"This, combined with media investors' inclination to favor Disney, has led to the stock significantly outperforming broader markets thus far in 2024, surpassing our expectations," Venkateshwar remarked. Disney shares have surged by 31% this year, while the S&P 500 has advanced by 9%.

‍

In response to the upgrade, Disney's stock rose by 2.3% in Monday morning trading.

‍

Venkateshwar attributes Disney's ability to stabilize earnings to cost-cutting measures, accounting benefits stemming from the consolidation of Hulu, and "tactical tailwinds" associated with last year's Hollywood strikes. However, he suggests that there is still room for improvement, as several elements of the turnaround strategy are still in progress and could significantly bolster numbers next year.

‍

Moreover, the impending resolution of proxy battles with Trian Fund Management and Blackwells Capital will allow Disney's board to shift focus towards CEO succession. Venkateshwar speculates that if Bob Iger indeed plans to retire in 2026, as currently scheduled, the company might unveil a long-term plan and guidance ahead of his departure, further boosting investor sentiment.

‍

However, Venkateshwar cautions that Disney's narrative isn't without uncertainties. Assessing the potential for earnings and cash flow surprises this year is challenging due to various one-time factors influencing recent performance.

‍

Furthermore, Venkateshwar believes that the financial discipline enforced by the proxy battle may entail long-term growth trade-offs, which, though not yet apparent, will become more significant considerations given the company's valuation now hovering at the upper end of historical norms. The stock is currently trading at approximately 22 times its estimated 2025 earnings-per-share, exceeding its historical peak of about 20 times in a normalized environment.

‍