Disney's stock has soared this year. Why this new bull says the rally has legs.

By Emily Bary

Disney shares have outperformed the S&P 500 by a significant margin so far in 2024 as the company starts to execute on a turnaround that could continue helping earnings

There's plenty of debate around Walt Disney Co.'s stock, but Barclays analyst Kannan Venkateshwar is now ready to side with the bulls.

He upgraded Disney's stock (DIS) to overweight from equal weight on Monday, while upping his price target to $135 from $95. Venkateshwar thinks Disney has been making progress after recent stumbles and can continue that momentum going forward.

There's been "incessant Disney-related news flow" ahead of an April proxy vote, according to Venkateshwar. That, along with better-than-expected free-cash flow and earnings guidance for this fiscal year, "has helped investors gain more confidence about earnings estimates having bottomed."

See also: Proxy advisory firm ISS backs Nelson Peltz's bid to join Disney's board

"This, combined with the propensity among media investors to be long Disney, has resulted in the stock outperforming broader markets meaningfully thus far this year, at a pace faster than we anticipated," he wrote. Disney shares are up 31% so far in 2024, while the S&P 500 SPX is ahead 9%.

The stock is up 2.3% in Monday morning trading following the upgrade.

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Disney has been able to stabilize earnings thanks to cost cuts, accounting benefits from his consolidation of Hulu, and "tactical tailwinds" related to last year's Hollywood strikes, according to Venkateshwar. But there's still room to improve for Disney, as "a number of turnaround elements still remain work in progress" and could help numbers in a significant way next year.

Plus, the company will soon be past its proxy battles with Trian Fund Management and Blackwells Capital. That will allow Disney's board of directors to "probably refocus attention on CEO transition and if [Bob] Iger does indeed intend to retire in 2026, as presently planned, we wouldn't be surprised if the company also lays out a long-term plan and guidance ahead of his departure which could further help the stock," Venkateshwar wrote.

That's not to say Disney's story is a slam dunk, as there are still some question marks. He notes it's difficult to determine the company's potential for earnings and cash-flow surprises this year since various one-time factors have contributed to recent performance.

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"In addition, we believe the financial discipline forced by the proxy battle isn't without long-term growth trade-offs, which are not evident yet but will soon become a bigger consideration with valuation now at the high end of historical normalized ranges for the company," Venkateshwar said.

The stock is trading at about 22 times its estimated 2025 earnings-per-share, above its peak level of about 20 times for a "historical normal environment," he wrote.

-Emily Bary

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03-25-24 1017ET

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