Wells Fargo raised the price target on Walt Disney (NYSE:DIS) to $147.00 from $141.00 while maintaining an Overweight rating, viewing it as the top idea in media.
According to the firm, Disney's Direct-to-Consumer (DTC) division presents a significant opportunity for the company to boost profits. Leveraging the combined strengths of Disney+, Hulu, and ESPN+, the firm believes Disney can generate over $100 billion in revenue and more than $7 in EPS by the fiscal year 2025.
Comparing Disney's performance to that of Netflix (NASDAQ:NFLX), which achieved a 13% operating income margin at $20B in revenue, the firm noted that Disney+ and Hulu, with a combined projected revenue of $20B by the fiscal year 2023, are currently experiencing a (15%) margin. However, the firm anticipates that Disney+ will implement price increases, pursue paid content sharing, and streamline content spending to around $8B, prioritizing profit over subscriber growth (projected at 131 million core subscribers by the fiscal year 2027).
The firm predicts that D+ and Hulu's DTC margins will surpass 20% by the fiscal year 2027, equating to an operating income of around $7B. The firm believes these DTC margin targets could be the basis for a future investor day.
The firm estimates 2022-2027 and 2023-2030 revenue CAGR of 6%, operating income CAGR of 13-14%, and EPS CAGR of 18-20%. Wells Fargo’s fiscal 2025 EPS estimate is $7.13 with over $8 by 2027 and nearly $10 by 2029.