What Investors Thought About Disney’s $60 Billion Toward Theme Park Growth
This week, Disney held an investors summit at Walt Disney World with a focus specifically on Disney Parks, Experiences, and Products. During the event, Disney updated investors on how the parks have been doing post-COVID-19, how profits are looking, visitor spending, and other trends. The Walt Disney Company also used the stage to talk about new theme park attractions, investment in Disney Cruise Line’s new ships, and more! The big takeaway from this event was that Disney outlined a commitment to invest $60 billion over the next 10 years specifically toward Disney Parks, Experiences, and Products. So how do investors feel about this focus on the parks and Disney’s plans moving forward? According to a recent piece in The Hollywood Reporter the answer seems to be cautiously optimistic.
Doug Cruetz from TD Cowen gave a “market perform” rating to Disney after the summit along with a $94 price target for Disney’s stock. “Disney management expressed a strong belief that DPEP can continue to be a major growth driver for Disney in the future,” Cruetz wrote. “ He went on to highlight upcoming projects including “World of Frozen” at Hong Kong Disney, Zootopia Land in Shanghai and Fantasy Springs in Tokyo demonstrating Disney’s commitment. Disney also has three new cruise ships in the pipeline, a new private island in the Bahamas, and over 1,000 new DVC “keys” coming within the next five years.
Jessica Reif Ehrlich from Bank of America highlighted in her report that the changes won’t be happening overnight. It may take several quarters or years to see them come to fruition. However, she added, “Bob Iger’s track record and stature in the media industry, we continue to believe his steady leadership bodes well for the future performance of Disney.”
She gave Disney a “buy” rating with a target of $110. However, she summarized Disney’s commitment to the theme parks as follows “For every one park guest there are 10-plus consumers with a Disney affinity who do not visit the parks. As a result, Disney will lean into this opportunity and invest $60 billion into theme parks and experiences over the next decade.” In a statement echoed by other investors she added, “Given the return profile of these businesses, we believe the increased investments are prudent to drive sustained longer-term growth.”
Steven Cahall from Wells Fargo gave an “overweight” rating of $110 as a stock price target. His firm has made Disney a “signature pick” Cahall and Wells Fargo seemed to like the direction Disney is moving in. He said, “Disney’s investor summit showed the company’s bullishness on parks/cruises, which remain among the best and most unique assets in media.”
Cahall may be speaking for many investors when he highlights the waters are a bit murky around whether park earnings growth will accelerate alongside spending growth. Cahall added that a great deal of the appeal when it comes to investing with Disney still lies with the strength of Disney+. Cahall added, “We still believe the real reason to own Disney here is that content is under-monetized on direct-to-consumer (DTC) given the valuable library and relatively low average revenue per user on Disney+ and Hulu.”
As we previously mentioned here at MickeyBlog, the $60 billion in spending over the next decade is expected to be self-funding. Disney hopes to increase capacity at theme parks, and resorts and with Disney Cruise Line. Parks & Experiences make up 75% of the fiscal year 2023 operating income at Disney. Morgan Stanley analyst Benjamin Swinburne sees this as a plus saying this is what makes Disney “uniquely attractive in long-term growth potential, scale, and returns, warranting a low double-digit earnings before interest, taxes, depreciation and amortization (EBITDA) multiple.” For that reason, Morgan Stanley gave Disney a $105 Disney stock price target.
Michael Morris from Guggenheim wrote an investor preview report outlining and acknowledging the slower activity at the domestic theme parks but saw positives in the expansion of Disney Cruise Line with three additional ships currently being built, the first of which, Disney Treasure, will be unveiled Summer 2024. However, Disney Cruise Line is still small potatoes compared to what the theme parks bring in, According to Morris, “With a full year of operation in fiscal year 2023, we estimate that cruise lines will comprise about 6.6 percent of total parks revenue, growing to 8.0 percent contribution in fiscal year 2025 ($2.6 billion of $32.5 billion total) and around 9.4 percent in fiscal year 2026 ($3.3 billion),”
Guggenheim gave Disney a “buy” rating of $125 in response to Bob Iger’s shift from “structure repair to growth.” Morris sees the potential adding, “There are 1,000 acres of available land across all Disney physical properties — equivalent to seven Disneyland parks,” with only 30 percent of Walt Disney World land currently developed.”
So all in all, it looks like investors like the direction of the Walt Disney Company with its focus on the theme parks and Disney Cruise Line. Disney continues to look at ways to grow attendance while building on its already successful theme park model.
This is a story we will continue to follow closely. Readers are encouraged to keep checking back with us for further news and updates.
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Source: Hollywood Reporter,