We’re not ready to echo Goldman’s call to buy Disney – here’s why

Posted on June 26, 2024 by angelo

We’re not ready to echo Goldman’s call to buy Disney – here’s why

Disney got the backing of a major Wall Street firm, but Jim Cramer said analysts’ reasons for buying weren’t enough to push the stock higher. Goldman Sachs initiated coverage of Disney with a Buy rating and a price target of $125 per share, implying an upside of more than 22% from the stock’s Monday close. Analysts have aptly touted Disney’s theme park business as a source of growth in coming years and a competitive advantage in a media industry in transition. However, Jim expressed concern that problems facing Disney’s cable television business, particularly its flagship ESPN division, are limiting actions in the near term. Goldman’s call is “important,” Jim said Tuesday at the Investing Club’s morning meeting. “I still think if you said that ESPN, that their numbers were up, that there were more subscribers, this stock would go up to $120. Otherwise, forget it because you have to find a way to stop the decline (in the traditional media system). Analysts said that as the U.S. media industry faces increased content competition and technological disruption, they prefer to invest in companies with “strong competitive margins that are expected to provide greater visibility on the growth “. In addition to recommending Disney, analysts have begun covering Fox and Comcast, CNBC’s parent company, with buy ratings. Disney is made up of three business segments: entertainment, which houses its streaming services like Disney+ and Hulu; Sports, consisting of the ESPN networks and its streaming companion ESPN+; and Experiences, which represents theme parks, cruises and consumer products. Experiences accounted for most of the company’s profits in its 2023 fiscal year. Goldman said Disney’s advantages include a portfolio of content and streaming rights that strengthen its Entertainment and Sports segments, respectively. The company sees Disney as streaming leader Netflix’s strongest rival and predicts continued progress in profitability. New streaming options, expected to launch next year, including ESPN, could help offset revenue losses from cord-cutting, Goldman said. On the entertainment side, Disney’s $60 billion theme park expansion is expected to fuel growth outside of the crowded streaming landscape, Goldman told clients. While we welcome Goldman’s positive multi-year outlook for Disney’s core businesses, it doesn’t change the fact that the stock has struggled to gain traction since Nelson Peltz’s unsuccessful proxy fight ended in early April. The May 7 earnings release sent the stock tumbling, erasing brief momentum in the days leading up to the report. The stock is down more than 12% since May 6, to about $102 per share as of Tuesday, although it remains about 13% year to date. We took profits on Disney around $122 per share and $114 per share on April 1 and April 15, respectively. In the short term, we are focused on streaming reaching profitability later this year and want to continue cost reduction efforts as part of CEO Bob Iger’s turnaround plan. We are also encouraged by the recent box office success of “Inside Out 2.” While this hasn’t shaken things up yet, it’s a step in the right direction for the movie studio industry. We currently have a rating of 2 on Disney stock, meaning we wait for a pullback before buying more, and a price target of $130. In this market, Jim indicated he was hesitant to increase the Club’s stake in a company with a dredging unit, especially one as large as Disney’s cable business. “I don’t want any compensation,” Jim said. “I just want everything to go well.” (Jim Cramer’s Charitable Trust is long DIS. See here for a complete list of stocks.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charity’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY OBLIGATION EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.

A sign welcomes visitors near an entrance to Walt Disney World on February 1, 2024, in Orlando, Florida.

Joe Raedle | Getty Images

Disney got an endorsement from a major Wall Street firm — but Jim Cramer said analysts’ reasons for buying weren’t enough to drive the stock higher.