Investing.com -- Jefferies starts Walt Disney Company (NYSE:DIS) with a “hold” and target price of $120, citing profitability prospects in streaming but tempered by challenges in its parks division.

Jefferies sees Disney’s direct-to-consumer business margins to improve from 1% to over 10% by 2027.

Bundling initiatives, pricing adjustments, advertising growth, and disciplined content costs are expected to drive this growth. Streaming, excluding Hulu Live, is forecast to contribute about 70% of Disney’s operating income growth through fiscal 2026.

Disney’s scaled advertising platform via Hulu, which generates an estimated $3 billion in 2024 revenue, positions the company as a leader in connected TV (CTV) advertising.

This advantage is expected to help Disney narrow the gap with Netflix (NASDAQ:NFLX) in terms of average revenue per user (ARPU), boosting long-term growth.

Though its Parks and Experiences segment, which accounts for 59% of Disney’s operating income, navigates slower growth in admissions and increasing competition from Universal's upcoming Epic Universe Park in 2025.

Jefferies flagged the potential overreliance on price increases to drive growth, which could falter amid weakening consumer sentiment.

Key downside risks on Jefferies target include difficulties in scaling streaming profitability and sustained weakness in the Parks segment. Disney stock has gained roughly 30% so far this year.

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Jefferies starts Disney with 'hold,' bullish on streaming, cautious on parks

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