Disney struggling to align its businesses for growth: Analyst

Shares of Disney (DIS) are slipping as weakness in the company's parks division weighed on its third quarter results. However, the entertainment giant's streaming division turned a profit for the first time ever. CFRA research director of equity research Ken Leon joins Catalysts to break down Disney's third quarter earnings report and its overall outlook in a changing media environment.

After Disney's earnings, CFRA lowered its price target on the company to $98 from $100 and reaffirmed its Hold rating. Leons explains, "It's extremely difficult to get all of Disney's businesses moving in the right direction for corporate growth. Additionally, moving into a softer economy and a consumer that is watching their budgets, the parks got hurt." He adds that while the streaming business turned a profit, "the numbers are very small. So in aggregate, they have a lot of challenges." Therefore, he does not see much opportunity for investors in the near-term as Disney struggles to align its businesses for positive growth.

He adds, "Shareholders are not getting healthy returns on investment or buybacks in a big way. It's just really challenging against more streamlined companies like Netflix (NFLX) that are really ahead of the curve in this area of streaming. It's a very tough area to compete." He argues that it has become increasingly difficult to "hold on and grow in the traditional areas for general entertainment," and does not expect Disney to report outsized growth in all of their areas for profitability in the fourth quarter.

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This post was written by Melanie Riehl

Video Transcript

Let's take a look at Disney because shares under a bit of pressure today as weakness in the company's Parks division weighing on third quarter results, you're looking at losses of just about 2%.

The company's total streaming a division turning a profit for the first time ever.

Yahoo Finance executive editor Brian.

So he spoke to Disney CFO H Johnston about this.

Here's what he had to say.

We said we were going to do it in Q four.

We've achieved it in Q three.

I would expect to see us continue to do that.

We were losing not too long ago, a billion dollars a quarter.

Now, now we made 47 million and I expect we're going to continue to go up for analyst reaction.

We want to bring in Ken Leon.

He is the director of Equity Research at CFR A research, Ken, it's great to have you.

So when you talk about Hugh Johnson, no surprise, he remains confident in the ability here for Disney to continue this momentum and continue to turn a profit within their streaming division.

What do you think?

Well, it's great to be here and, and Disney is not participating in the market as we know.

So let me just set the stage.

Uh This is one of the premier companies you Johnson only did a 30 minute conference call with analysts.

There's 22 analysts with buys out of 34 analysts.

We have a whole rating.

Uh The consensus of these analysts is a target price of 122.

Today, we lowered ours from 100 to 98.

We have a whole rating and our conclusion, it's kind of like where we were a year ago, it's extremely difficult to get all of Disney's businesses moving in the right direction for corporate growth.

Additionally, moving into a softer economy and a consumer that is watching their budgets, the parks got hurt and, and New Johnson can speak to getting to profitability and streaming, but the numbers are very small.

So in aggregate, they have a lot of challenges.

Uh the businesses are diverse and I don't think investors really need to look at the near term opportunity uh because they can't put all these businesses align for positive growth.

Ken, I'm fascinated by that because if the problem is that it's difficult for Disney to get all of its businesses going in the right direction, what solves that ever.

So there, there's been, you know, analysts saying perhaps there's some businesses that either get downsized or spun off ESPN, but we know they just paid up, you know, live sports is so exciting, whether it's been Comcast with the Olympics.

So you're gonna pay huge for the NBA rights, which they did.

And then again, when you look across at the other areas, um, advertising is always questionable.

Um And parks was really where you hold the line and you're gonna spend $60 billion over the next 10 years for parks, some new cruise ships and you put it all together, shareholders are not getting healthy uh returns on investment or buybacks in a big way.

Uh It's just really challenging uh against more streamlined companies like Netflix uh that are really uh ahead of the curve, you know, in this area of streaming, it's a very tough area to compete.

I think the untold story here for the last decade, but really the last year or so is that advertising has moved to social media uh and it is significantly there for meta uh for alphabet and for others.

And it's just hard to hold on and grow in the traditional areas for general entertainment.

So I, I think we'll have to watch Disney, but I'm highly confident that the fourth quarter that they report is not gonna have outside growth in all their areas for profitability.

Um It's just, it's challenging.