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Evercore ISI raises Disney shares target, sees return to premium valuation

EditorEmilio Ghigini
Published 08/04/2024, 10:02
© Reuters.

On Monday, Evercore ISI updated its price target for Walt Disney (NYSE: NYSE:DIS) shares, increasing them to $130.00 from $115.00. The firm maintains an Outperform rating on the stock, indicating a positive view of the entertainment giant's future performance.

The adjustment in the price target reflects a shift in market sentiment, with expectations that Disney's valuation will align more closely with historical patterns. Specifically, during Bob Iger's initial tenure as CEO from October 2005 to 2015, Disney's shares consistently traded at a premium compared to the S&P 500. This was a period marked by substantial growth for the company, with its stock commanding an average premium of +16% and a median of +18%.

However, from 2016 to Disney's first direct-to-consumer (DTC) investor day in 2019, the company experienced a downturn in valuation. This was attributed to concerns over the declining subscriber base in the linear TV ecosystem, which led to Disney trading at an average and median discount of 5% to the S&P 500.

The recent price target increase to $130 is based on a projection that Disney's stock will return to its previous premium valuation over the S&P 500. Evercore ISI anticipates an 18% premium on the calendar year 2024 estimated earnings per share (EPS) of $5.11, which is 5% ahead of the consensus.

This revised outlook suggests confidence in Disney's strategy and the potential growth of its DTC offerings, which may counterbalance the challenges faced by traditional TV networks. The new target implies that investors and analysts alike are expecting a resurgence in Disney's market performance, reminiscent of its stronger years under Iger's leadership.

InvestingPro Insights

Evercore ISI's optimistic revision of Disney's price target aligns with some of the current data and projections available on InvestingPro. Notably, Disney's net income is expected to grow this year, which could be a driving factor behind the firm's increased price target. Additionally, 8 analysts have revised their earnings upwards for the upcoming period, signaling a consensus that the company's financial health may be on an upswing. This is further corroborated by Disney's robust performance over the last three months, with a significant price uptick of 43.19% over the last six months, and a 29.31% return in the past three months alone.

While the company is trading at a high earnings multiple with a P/E ratio of 72.59, the adjusted P/E ratio for the last twelve months as of Q1 2024 stands at a more moderate 43.22. This suggests that while the stock may be priced highly relative to its earnings, expectations for future earnings growth are factored into the current valuation. Moreover, Disney's status as a prominent player in the entertainment industry could be contributing to its premium pricing.

For investors looking to dive deeper into Disney's financials and future prospects, InvestingPro offers additional insights and metrics. With the use of coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking valuable information that can inform investment decisions. Currently, there are 11 additional InvestingPro Tips available for Disney, which can provide a more comprehensive understanding of the company's position and trajectory.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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