Disney's Road to Recovery: What to Expect from the June Earnings Report

Despite a turbulent year, Disney shareholders have seen little movement in the company's stock price. With hopes of a recovery in mind, investors are eagerly awaiting the release of Disney's earnings report for the June quarter, scheduled for after the closing bell on Wednesday.

While there are numerous challenges that Disney has been facing, two key areas of concern have surfaced: underperforming streaming business and lackluster box-office sales. One glaring disappointment has been the abysmal performance of "Haunted Mansion." Additionally, ESPN and other cable television channels continue to grapple with cord-cutting and other associated issues.

According to Wall Street analysts tracked by FactSet, the consensus predicts a 4.6% increase in sales compared to the previous year, amounting to $22.5 billion. However, adjusted profits are expected to decline to 97 cents per share from $1.09 per share in the same quarter last year.

Within the Media and Entertainment division, revenue is anticipated to rise by 1.6%, reaching $14.3 billion. This forecast includes a projected 13% growth in revenue for direct-to-consumer media, particularly Disney+. Nevertheless, a decline of 6.3% in Linear Networks (the cable channels) is expected, resulting in $6.7 billion in revenue.

As for the Parks, Experiences, and Products segment, analysts predict an impressive 10% increase in revenue, amounting to $8.1 billion. The parks and experiences business is anticipated to grow by 10%, offset slightly by a projected 7% decrease in consumer products.

Deutsche Bank Analyst Lowers Price Target for Disney Stock

Deutsche Bank analyst Bryan Kraft has reiterated his Buy rating on Disney stock ahead of the quarterly results but has lowered the target price from $131 to $120. Kraft explained that this change in target price reflects lower estimates due to a decline in projected advertising revenue and box office underperformance. Additionally, softer theme park attendance in Orlando, Fla., has contributed to the reduction in the target price.

As of Tuesday's closing, Disney stock was priced at $88.13, representing a 1.4% increase since the beginning of the year. In comparison, the S&P 500 has experienced a 17% increase.

Full-Year Financial Forecasts Expected to be Reduced

Kraft predicts that Disney will revise its full-year financial forecasts, which previously indicated high single-digit growth in both revenue and segment operating income. The reduction in outlook is widely anticipated and already factored into the current stock price.

Disney Faces Multiple Challenges

As noted by Kraft, Disney is currently grappling with several challenges. The ongoing strike by Hollywood actors and writers is impacting the business in various ways, including scheduling delays for movie and TV releases. Additionally, there are signs of a creative decline at Disney, evident in recent underperforming films such as the latest Indiana Jones and Strange World animations.

The Future of ESPN and Disney's Non-Sports Linear Channels

The fate of ESPN remains uncertain. Kraft believes that a streaming version of the service will potentially launch by 2025 or 2026, although specific details are currently unclear.

Investors are also interested in Disney's plans for its nonsports linear channels, including ABC, National Geographic, FX, and the Disney Channel. Speculation arose after CEO Bob Iger mentioned in an interview on CNBC that these channels may not be integral to the company's future. This statement has triggered speculation that Disney may consider selling some or all of these channels.

Acquisition of Comcast's Stake in Hulu

Additionally, Disney is expected to acquire Comcast's one-third stake in Hulu. Under the current agreement between the two companies, Comcast has the option to sell their stake to Disney in January, with a valuation set at a minimum of $27.5 billion.