Disney Stock Upgraded Despite Tough Q3
Yesterday afternoon, Disney Stock began to rally after a drop due to the company’s less than optimal Q3 Earnings Report.
However, Barron’s Magazine says that shares of Disney “could quickly regain its losses and climb even higher as several positive catalysts boost investor sentiment.”
Disney Stock Bounces Back
Credit Suisse upgraded the stock to the equivalent of a buy on Thursday morning, citing the launch of the Disney+ streaming service in November and several upcoming milestones in Disney’s traditional TV, movies, and theme park businesses.
Disney turned in fiscal third-quarter earnings and revenue below analysts’ expectations on Tuesday evening, and its stock fell nearly 5% the following day.
The bulk of the miss came due to poor performance at the newly incorporated media and entertainment properties that Disney acquired from 21st Century Fox in late March. The consolidation pushed Disney’s sales up 33% from the same period a year ago, but those assets didn’t earn as much as Wall Street had expected them to. At $1.35 per share, earnings came in 22% below consensus as the 21st Century Fox assets cost Disney 60 cents per share, versus guidance of a 35-cent drag.
Disney+ Bundle Important
Also crucial to the relative rally was investor belief in Disney+.
Investor’s Business Daily’s Aparna Narayanan added:
On Wednesday, Needham analyst Laura Martin wrote she expects Disney to “win” the subscription video battle in the U.S., adding subscribers at the expense of Netflix amid subscription fatigue. She offered six reasons:
- Disney+ is priced more than 30% below Netflix (at $7/month vs. $12/month for standard Netflix pricing).
- Disney+ will host most Pixar, Marvel, Star Wars and Disney movies at launch on Nov. 12.
- Disney products already reach 100 million households per year, which should lower costs for acquiring customers for Disney+.
- The new $12/month bundled pricing for Disney+, Hulu and ESPN+ should lower customer churn.
- Strong balance sheet and free cash flow give Disney “more staying power” than Netflix.
- Disney has several content creation studios under its corporate umbrella.
Talking Disney Stock With Bob Iger
Meanwhile, CNBC’s Squawk Box sat down with Bob Iger on Wednesday.