Seaport Research downgraded Walt Disney (NYSE:DIS) to Neutral from its previous Buy rating, citing concerns over the outlook for the company's Parks and Direct-to-Consumer (DTC) segments following its latest earnings report.
In a note, Seaport highlighted that slowing performance in Disney's Parks division and less-than-expected profitability in the DTC segment are key factors driving the downgrade.
Analysts at Seaport pointed out that while Disney's DTC segment reached positive Segment Operating Income (SOI) one quarter earlier than expected, the profitability is likely to fall short of expectations in fiscal 2025 due to increased tech spending on user interface features and ad capabilities.
Additionally, the Parks segment is expected to experience a negative SOI growth rate for the next few quarters, further dampening the company's near-term prospects.
Despite some encouraging signs in Disney's third-quarter fiscal 2024 report, including a return to profitability in Content Sales & Licensing driven by recent successful theatrical releases, Seaport believes it may take a few quarters before more positive consumer and profit trends emerge.
Given these challenges, Seaport has removed its prior $120 price target for Disney, acknowledging that this target "does not seem achievable in the next 12 months." The analysts now estimate a more realistic valuation range of $94 to $117 per share, though they do not anticipate any near-term catalysts to boost investor sentiment.
Seaport also noted that while Disney's shares trade at a discount to its usual industry-leading valuation metrics, the current financial outlook is "not terribly compelling" ahead of fiscal 2025, when revenue and SOI growth are expected to be modest at best.