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The Ratings Game: Disney’s ‘massive recovery’ is still in the early innings as parks business bounces back with a vengeance

Walt Disney Co. isn’t just seeing a pandemic recovery in its parks business—it’s also setting records in the process.

Shares of Disney

are up 4% in Thursday afternoon trading after the entertainment giant delivered a better-than-expected fiscal first-quarter earnings report that was highlighted by what the company said were new revenue and operating-income records in its domestic parks and resorts business.

One striking statistic was that, from the September quarter to the December quarter, Disney grew domestic parks revenue by $1.33 billion while it increased domestic parks profits by “a nearly identical” $1.31 billion, noted MoffettNathanson analyst Michael Nathanson.

“In other words, in a period of rising inflation, the domestic park business added zero incremental costs as revenues surged,” he wrote. Nathanson said the parks rebound reflected “the most amazing set of drivers that we have ever seen,” and he sees the business as well positioned to demonstrate “a massive recovery in profits over the next three quarters.”

He rates Disney shares at neutral with a $165 price target.

See also: Disneyland hikes ticket prices — on some days it will cost as much as $164 to visit

Wells Fargo’s Steven Cahall was also impressed by Disney’s parks recovery and the way the company is growing revenue in this part of the business. He highlighted commentary from Disney’s management team suggesting that higher spending on rooms, food and beverages, and merchandise are helping fuel revenue increases.

“This sort of operating leverage has been the Parks bull case, and we expect estimates to now move up,” Cahall wrote. He rates the stock at overweight with a $196 price target.

Cowen & Co.’s Doug Creutz cheered the parks results as well. “The significant upside in parks was expected to a degree in light of NBC Universal’s recently reported strong Parks performance, but the degree of pricing power and margin leverage was still impressive,” he wrote.

Creutz added that the dramatic parks rebound comes even as attendance sits below pre-pandemic levels. He has a market perform rating on the stock and upped his price target to $132 from $126.

Another high point for some in the latest quarter was the company’s Disney+ streaming service, which added more subscribers than expected. Morgan Stanley’s Benjamin Swinburne saw encouraging signs in Disney’s disclosures about the Disney+ geographic mix, which indicated to him that the company’s North America base was “much larger” than he anticipated.

“The business is larger and growing faster than we thought (while international is smaller),” he wrote. “Disney’s research shows clear appetite from households that do not yet subscribe today for more general entertainment content, more “Star Wars,” and more Marvel – all of which is on the come.”

He rates Disney’s stock at overweight with a $170 price target.

While MoffettNathanson’s Nathanson thought Disney’s parks performance would resonate well with investors, he was more skeptical that the Disney+ commentary would drive a “further re-rating” of the stock. The company’s 11.7 million subscriber additions looked impressive on the surface, but he noted that about 2 million came from automatic bundles with Hulu and 2.6 million more came from Hotstar, Disney’s cheaply priced Indian offering.

Shares of Disney are off 12.3% over the past three months as the Dow Jones Industrial Average

has lost 1.6%.

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