While Walt Disney(NYSE: DIS) faces down more than its fair share of challenges, one part of the business that's working is its iconic parks. Analysts at Bank of America kicked off the week by maintaining a buy rating on Disney stock and bumping up the price target to $145. This new price target represents an upside over the next 12 months or so of about 19.5% from the current stock price.
Disney's parks are booming
The BofA analysts justified the price target bump by honing in on Disney's park performance. The experiences segment, which includes parks and cruise ships, grew revenue by 7% year over year in Disney's fiscal first quarter. Segment operating income grew slightly faster at 8%.
The strength of the parks business has led the BofA analysts to believe that Disney can grow overall operating income by a low-to-mid-teens percentage in the second quarter. For the full year, Disney has guided for at least a 20% rise in earnings per share.
Still plenty of obstacles
While Disney's parks continue to draw in crowds, the company's streaming business remains unprofitable, its movie business is no longer a can't-miss blockbuster factory, and the company's efforts to adapt its sports business to the age of streaming remain a work in progress.
On top of all that, Disney faces a proxy battle with activist investor Nelson Peltz. The company's annual shareholder meeting on Wednesday could turn into a spectacle if Disney's slate of board nominees don't receive enough support from investors.
Disney is very much in turnaround mode, but its parks can act as a solid, highly profitable foundation as the company works to fix its problems and return to sustainable growth. Disney stock doesn't look cheap, trading for about 26 times earnings guidance. However, investors shouldn't underestimate the company's ability to grow the bottom line dramatically over the next few years. Rising profits could lift the stock well above $145 in the long run.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Timothy Green has positions in Bank of America and Walt Disney. The Motley Fool has positions in and recommends Bank of America and Walt Disney. The Motley Fool has a disclosure policy.
