Walt Disney Co (DIS)

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Disney remains JPMorgan's 'favorite name' for stocks in uncertain media industry
By: Morningstar | February 14, 2023

As newly reinstated CEO Bob Iger takes aim at 'bloated' costs, one analyst is feeling upbeat about Disney

JPMorgan's Philip Cusick is feeling "cautious" about the media industry, but he likes Walt Disney Co.'s potential.

He picked his coverage of Disney's (DIS) stock back up on Monday with an overweight rating and $135 price target, dubbing it his "favorite name" among media stocks and writing about his optimistic view of the company's transformation aims.

Among the positives for Disney are its "strong asset mix and what we expect to be a rapid decline in streaming losses in the next year," Cusick wrote.

Chief Executive Bob Iger is back at the helm of Disney, and he's focused on improving the company's streaming profitability. As such, Cusick expects Disney's margins will improve "as the company pares away what had become during COVID a bloated cost structure" in Disney Media and Entertainment Distribution.

Cusick also gets the sense that Disney might start hiking the price of its Disney+ service more regularly given Iger's comments suggesting a minimal impact on churn from the last increase.

"[W]e would be surprised if Disney+ price increases didn't become an annual thing for a few years anyway," Cusick wrote.

He weighed in as well on the future of Disney's involvement with Hulu, given that the company has the option to buy out Comcast's one-third stake in the streaming platform as soon as January 2024, though Iger recently said that it "isn't necessarily the case" that Disney will buy it.

"While CEO Iger has expressed in recent interviews that Hulu is less of a priority, we think this is posturing (similar to Comcast CEO Roberts saying in September he wanted to buy it), and that Disney still buys Comcast out of Hulu for the minimum $9 [billion]," Cusick wrote.

Additionally, he noted that he now models Disney paying out a dividend of $1 a share in fiscal 2024. The company suspended its dividend in 2020 as its business took a hit at the start of the pandemic.

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