Hold on tight, Mickey, we might be in for a wild ride.
During Disney’s (DIS) second-quarter earnings call, Chief Executive Bob Iger phoned in from the United Arab Emirates, where the entertainment giant had unveiled an agreement to build a Disney theme park there.
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“Disneyland Abu Dhabi will be authentically Disney and distinctly Emirati,” Iger said “It will serve as an oasis of extraordinary Disney entertainment for millions and millions of people in this crossroads of the world connecting travelers from the Middle East and Africa, India, Asia, Europe and beyond.”
Related: Disney makes major theme park announcement after startling loss
Disney, which has 12 theme parks and six resort locations worldwide, plans to partner with the UAE-based company Miral Group.
“Our Imagineering team is already hard at work designing this large and very special destination that will become a source of joy and inspiration for generations to come,” Iger said.
Disney CEO Bob Iger says he was encouraged ‘by the strength and resilience of our business.’ (Photo: Angela Weiss-AFP via Getty Images)
Disney CEO encouraged by strength of business
The Abu Dhabi deal got lots of media buzz, but TheStreet Pro’s Stephen Guilfoyle noted that Iger said “it typically takes us between 18 months and two years to design and fully develop and approximately five years to build, but we’re not making any commitments right now.”
“In other words … hold your horses,” the veteran trader said.
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Disney beat Wall Street’s quarterly forecasts, fueled by higher streaming profit, domestic theme parks and home-video sales of “Moana 2”, according to Variety.
While Disney’s U.S. theme parks are recovering from last year’s weaker demand, its international theme parks are starting to see foot traffic decline.
“Despite questions around any macroeconomic uncertainty or the impact of competition, I’m encouraged by the strength and resilience of our business as evidenced in these earnings and in the second-half bookings at Walt Disney World,” Iger said.
Guilfoyle, whose career goes back to the floor of the New York Stock Exchange in the 1980s, said in his TheStreet Pro column that he was “was mildly surprised” at the earnings report.
“The House of Mouse is executing at a higher level than I had thought,” he said. “There have been some missteps, but the parks have carried the football.”
Guilfoyle said the Disney+ streaming service is increasing with average revenue per user for international Disney+ subscribers growing nicely.
“The quarter was solid and the guidance was quite robust,” he said.
However, the Wall Street veteran noted that Disney’s headline and quick ratios ended the period at 0.67 and 0.61. Adjusted for deferred revenue, these ratios rise but only to 0.84 and 0.76, respectively.
“If you know how to find your way around a balance sheet, I don’t have to tell you in un-sugar-coated terms that these ratios are awful,” Guilfoyle said. “Running with more debt that matures in less than a year than having cash on hand is not so sweet either.”
Veteran trader: Current part of Disney balance sheet ‘train wreck’
“The current portion of Disney’s balance sheet is an absolute train wreck,” he added. “For me, despite strong operating and free cash flows, the horrific condition of the balance sheet makes Disney uninvestable.”
Disney shares are down nearly 6% since January and off slightly from a year ago.
Several investment firms issued research reports after Disney posted its results.
Guggenheim lowered its price target on Disney to $120 from $130 and affirmed a buy rating on the shares, according to the Fly.
A “broad-based beat” of Wall Street estimates coupled with management maintaining and/or raising most 2025 guidance and its longer-term EPS growth outlook “underpin confidence,” the investment firm said.
Guggenheim raised its 2025 forecasts following the strong fiscal-second-quarter results and higher second-half outlook.
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Morgan Stanley raised its price target on Disney to $120 from $110 and reiterated an overweight rating.
Revenue growth of 7% year-over-year came in more than 2 percentage points ahead of expectations, driven by domestic parks and ESPN, while Disney+ added subscribers and guided to continued growth, the analyst tells investors.
Despite the recent rally, the shares have a major macroeconomic overhang, the analyst said. MS argues that guidance pointing to $7-plus of fiscal 2027 adjusted earnings per share would move the stock toward its $155 bull case, which assumes no recession and Disney continuing to outperform its initial guidance provided last November.
UBS raised its target on Disney to $120 from $105 and reiterated a buy rating.
The investment firm called the second-quarter results solid, led by stronger Experiences, improvement at Direct-to-Consumer, and resilient linear profits.
While the macroeconomic backdrop is dynamic, management suggested minimal impact to date with second-half Parks bookings solidly ahead of a year ago, UBS said.
All three firms now peg the Disney target at $120, about a 14% upside from the stock’s current level.
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