F3Q Demonstrates EPS Delivery Capability; Maintain Overweight

Overview

JPMorgan believes Disney's F3Q results showed positive progress across several key areas. The Experiences business outperformed expectations on growth in domestic U.S. attendance and per-capita spending, while SVOD continued double-digit revenue growth and achieved record margins. Negative factors include weak box office performance for Moana, slowing DTC advertising growth, and lower-than-expected Sports profitability, which will weigh on F4Q performance. The company reiterated its FY26 and FY27 adjusted EPS growth guidance, leading the research institution to maintain its Overweight rating.

Core views

Not all of Disney's businesses can strengthen simultaneously in the same quarter, but its portfolio across Entertainment, Sports, and Experiences has continued to demonstrate EPS growth capability. Disney+ remains the core of the company's digital strategy, and Hulu integration, Sports content funneling, platform feature expansion, and investment in international local content are expected to improve user engagement and monetization. The Experiences business, benefiting from the company's own operational measures and future capacity additions, is an important pillar of medium-term growth. Traditional TV subscriber losses, weak advertising, and sports rights costs remain pressures, but cost savings, new distribution arrangements, and improved streaming profitability are expected to cushion the impact.

Analysis framework

The report updates earnings forecasts by combining actual F3Q results, management's FY26 and FY27 guidance, and operating metrics for each business segment, and uses a DCF methodology to determine the target price. Segment analysis focuses on SVOD margins and content performance in Entertainment, attendance and per-capita spending in Experiences, and rights, distribution, and advertising trends in Sports.

Methodology notes

• Valuation MethodDCF Valuation

  Calculating equity value based on discounted future free cash flows

  The target price is derived using DCF analysis, applying an 8.7% weighted average cost of capital and a 3.5% perpetuity growth rate; after the sale of A+E and removal of the related forecasts, the December 2027 target price was lowered from $140 to $137.

• Earnings ForecastSegment-Driven Forecast

  Modeling Entertainment, Sports, and Experiences separately based on revenue, margins, and operating metrics

  The report adjusts segment operating income based on F3Q results and F4Q guidance, and incorporates the reduction in A+E equity income, share repurchases, and changes in net interest costs into the FY27 EPS forecast.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• DIS.US

  Core covered stock in the report, rated Overweight

  Strengths

  Unique content assets, improving streaming profitability, strong theme park and Experiences business, cross-business synergies, and sustained EPS growth capability.

  Weaknesses

  Continued traditional TV subscriber losses, slowing DTC advertising growth, volatility in film project performance, and Sports profitability affected by events and distribution disruptions.

  Comparison

  The domestic U.S. Experiences business continued to accelerate growth and outperform peers despite macro pressure; at approximately 14x expected 2027 EPS, the report views the valuation as attractive.

  Risks

  Delayed streaming profitability, theme park demand dragged down by macro conditions, linear TV subscriber losses exceeding expectations, rising sports rights costs, and theatrical content volatility.

Key data

• Rating and target priceOverweight; $137Target price lowered from $140, with a timeframe of December 2027.
• Current share price and potential upside$101.76; approximately 34.6%Share price as of August 5, 2026.
• FY26 adjusted EPS$6.68, up 12.7% year over yearExcluding the 53rd week; F4Q is expected to be $1.42.
• FY27 adjusted EPS$7.35, up 10% year over yearThe loss of A+E earnings is expected to have an impact of approximately $0.10 to $0.15 per share, but is offset by higher repurchases and lower net interest costs.
• SVOD performanceSubscription revenue up 15% year over year; operating margin 12.9%Margin reached a record high, but is expected to decline sequentially in F4Q due to the timing of marketing and programming expenses.
• FY26 Entertainment operating income$5.15bn, up 10.3% year over yearLowered from the previous $5.3bn, at the lower end of double-digit growth guidance.
• FY26 Experiences operating income$10.92bn, up 9.2% year over yearDriven by the F3Q beat and an upward revision to F4Q domestic U.S. attendance assumptions.
• FY26 Sports operating income$3.01bn, up 4.3% year over yearLargely unchanged, at the low end of mid-single-digit growth guidance.
• A+E transaction50% stake sold to Hearst for $1.2bnReduces Entertainment equity income contribution by approximately $350mn to $400mn starting in FY27.
• Key DCF assumptionsWACC 8.7%; perpetuity growth rate 3.5%Used to calculate the $137 target price.

Impact & implications

F3Q results strengthened market confidence in Disney's ability to continue delivering EPS growth near the double-digit range. Organic growth in Experiences and improved SVOD profitability can partially offset headwinds from traditional TV, advertising, and content volatility. Although the A+E sale lowered valuation and future equity income, repurchases and improved financing costs kept the FY27 EPS forecast unchanged. If international visitor recovery, new Experiences projects coming online, and Disney+ feature expansion proceed smoothly, the current valuation may be re-rated; in the near term, however, the company needs to digest pressure from weaker F4Q segment profit.

Risks

• The DTC business achieves stable profitability later than expected.
• Macroeconomic weakness leads to slower theme park attendance and spending.
• Linear TV subscriber losses exceed expectations.
• Live sports rights costs rise further.
• Theatrical film project performance is volatile, with weak performance similar to Moana dragging on profit.
• SVOD advertising demand and pricing remain under pressure.
• Weak demand at international theme parks continues into subsequent quarters.

What to watch

• Whether the F4Q segment operating income target of approximately $4.3bn excluding the 53rd week can be achieved.
• The stable level of SVOD operating margin after its F4Q decline and the pace of improvement in the advertising business.
• Progress on Hulu and Disney+ integration, the launch of live TV and add-on services, and member ecosystem features in spring 2027.
• The effect of Disney+ introducing premium ESPN content on user engagement and Trio bundle upgrades.
• International visitor recovery and the pace at which new Experiences projects and capacity come online.
• Domestic U.S. theme park attendance, per-capita spending, and future booking trends.
• Progress in resolving the distribution dispute between NFL Network and Comcast.
• The impact of expanding international local original content on customer acquisition, churn, and the approximately $24bn content spending scale.