Walt Disney Company (DIS -0.03%) stock is off to a terrific start in 2024, gaining 19%. That’s the good news. The bad news is Disney stock did significantly worse last year, and has underperformed the S&P 500 by more than 17% over the past 52 weeks.
Can returning champion CEO Bob Iger pull Disney stock out of its funk, and get the stock price moving higher again? Bernstein thinks it can. In a note covered on StreetInsider Tuesday, the NYC investment banker reiterated its “outperform” rating on Disney stock and tweaked its price target higher, to $120 a share.
Upgrading the House of Mouse
Bernstein’s bet hinges on its belief that the entertainment company is serious about cracking down on password sharing among subscribers to Disney+ and Hulu streaming services. According to the analyst, Disney is losing about $1.2 billion a year from customers sharing passwords (and from potential customers not paying up).
It may take Disney six to eight quarters to fully crack down and convert non-paying freeloaders into paying customers — but the analyst thinks it’s worth the effort.
Is Disney stock a buy?
I admit I had something of a double-take upon reading about this. I mean, Bernstein seriously thinks that it’s worth harassing 150 million Disney+ subscribers, and nearly 50 million Hulu subscribers, all to shake loose a measly $1.2 billion? For a company with nearly $89 billion in revenue already, that seems like small potatoes.
But it actually could be worth it. Bernstein notes that streaming revenues are very high-margin for Disney, and $1.2 billion in revenue could generate an extra $840 million in free cash flow — approximately 17% of the FCF Disney generated last year.
That’s some nice extra cheese for the House of Mouse.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool has a disclosure policy.
