By Sam Boughedda
Atlantic Equities told investors in a note Wednesday that despite Bob Iger's return to Walt Disney (NYSE:DIS), there is no easy fix, and they remain Neutral on the stock with a $107 price target.
Analysts outlined various points Disney needs to address in order to better its current situation, one of which is that morale at the company needs to be improved.
"Iger changed the company's structure on his first day back, moving from a streaming-first approach and returning power (and profits) into the hands of key content executives. Parks morale is also low, following the fallout with DeSantis in Florida over the Don't Say Gay law, which also led to the loss of Disney's special tax status in that state," said the analysts.
They added that Disney's Parks top-line performance has been strong, but there are "concerns Chapek may have pushed too hard on revenue with Genie+ and price hikes damaging guest satisfaction."
"With parks margins missing last quarter, Iger has maintained the company's hiring freeze and will reassess costs. While this will help profitability, it will work against morale. The company has also started discounting at its flagship Star Wars hotel, perhaps the first indication of recessionary pressures, but it could also just be too expensive for most fans," the analysts continued.
They also stated that Atlantic Equities estimates that linear TV accounts for 75% of Disney's free cash flow, and the firm sees both volume and pricing trends worsening, with content cost pressures and a recession headwind. In addition, they believe the company's guidance "needs to come down."
"The core Disney+ guide of 135-165m subs in 2024 looks too high (we are at 135m), and seems unlikely given new market launches are done. Likewise, the 2023 guide of high single-digit revenue/OI growth requires the parks to remain strong, which seems similarly tough."
Disney shares are up 2.45% at the time of writing Wednesday.