Piper Sandler starts Walt Disney at Neutral amid Experiences segment slowdown

Investing.com -- Piper Sandler analysts started research coverage on The Walt Disney (NYSE:DIS) Co. stock on Wednesday with a Neutral rating and a $95 price target.

The investment bank said it sees limited upside to estimates in the following few quarters due to a potential slowdown in the company's Experiences segment, particularly the parks business.

“We believe the consumer-related slowdown within the parks business will likely persist for a few more quarters, and with Experiences representing ~40% of segment operating income, we do not expect material upside,” analysts said in a note.

Despite these short-term concerns, Piper Sandler expressed confidence in the "Disney flywheel" and the company's ability to engage consumers through its diverse assets, including its recent success in film.

The firm acknowledged Disney's strategic focus on refining its film slate, investing in Parks and Experiences, and improving the streaming experience, which could accelerate the company's growth momentum moving forward.

“Overall, we believe the flywheel is a differentiator within the entertainment industry, helping to provide both long-term growth and profitability drivers,” analysts noted.

The moderation in the Experiences segment is seen as a temporary headwind following a period of robust growth.

Disney's management anticipates that this moderation will be short-lived, lasting only a few quarters, given current booking trends. However, Piper's team remains cautious and prefers to wait for stability in this business area before adopting a more positive stance on Disney's stock.

Meanwhile, Disney's direct-to-consumer (DTC) business has reached a profitability milestone, which analysts see as a significant achievement.

The firm expects the entertainment DTC segment to become profitable by the September quarter.

While confident in Disney's ability to achieve double-digit margin targets eventually, analysts await further clarity on the timeline and strategy for the next phase of margin expansion before becoming more constructive on the stock.

On valuation, they noted that Disney shares trade at a discount compared to its peer group, and also relative to the S&P 500 on an enterprise value-to-sales (EV/S) multiple.