BMO Capital Markets raised its price target significantly on Disney's (DIS) - Get Report stock in a note on Monday evening, arguing that the entertainment giant is positioned to become a leader in content streaming.
Disney's stock was one of the few Dow components to rise on Tuesday morning as concerns about a trade war between the U.S. and China continue to weigh on the market. Shares were up 1.11% to $137.50 as analyst David Miller at Imperial Capital also raised his stock price target on Disney on Tuesday; Disney reports fiscal-second quarter earnings after the close on Wednesday.
On Monday evening, BMO analyst Daniel Salmon raised his price target on the stock from $135 to $170, implying 24% upside from Disney's current price. He maintained his outperform rating.
"We continue to expect Disney to join Netflix (NFLX) - Get Report and Amazon (AMZN) - Get Report (also both [outperform] rated) among the leaders in global streaming," Salmon wrote in the note. "Potential catalysts include two Star Wars-themed lands opening in Anaheim (May 31) and Orlando (August 29), and the launch of Disney+ on Nov 12." Salmon added that Disney's earnings could show ESPN subscriber declines, but that the new and promising ESPN+ streaming platform should offset that.
Salmon estimates that Disney+ will accrue 69.8 million global subscribers by 2024 and 120.8 million by 2028. This comes after UBS analyst John Hodulik wrote in a note on Monday raising his own price target from $128 to $165 that Disney can get to 125 million global subscribers by 2024. Disney has guided for a range of between 60 million and 90 million subs by 2024. Meanwhile, Netflix is positioned to potentially reach 300 million global subscribers by 2024.
As for ESPN+, Salmon thinks Disney will reach 11.4 million global subscribers by 2024, which is at the higher end of management's guidance of a range between eight million and 12 million.
Salmon also thinks Hulu, which Disney owns a majority stake in, will reacg 55.5 million subscribers by 2024, versus management's guidance of between 40 million and 60 million. With subscriber count increases and price hikes, which Netflix has also instituted, Salmon models a 16.9% compound annual growth rate for Hulu revenue, reaching $10.34 billion by 2024.
With Disney's new businesses, Salmon now values the company on a sum-of-the-parts (SOTP) basis at $170 a share, valuing the direct-to-consumer business at $95 billion, or $52 a share, and the core business at $118 a share.
Disney shares are up about 26% this year.