Walt Disney is in a good position to manage its debt levels.
So says Fitch Ratings, which on Tuesday affirmed Walt Disney Co.’s debt valuations at ‘A-“, with the rating outlook stable. But the ratings giant warned on near-term investments in expanding Disney theme parks and cruise line fleet to put pressure on cash flow and earnings growth.
Fitch forecast “multiple headwinds (to) blunt near-term credit improvement as significant capex across theme parks and cruise lines negatively impacts expected FCF (free cash flow).” The ratings agency also flagged Disney increasing its dividend and share repurchase activity in place of accelerated debt reduction, and said it expected the upcoming final payment to Comcast Corp. for its Hulu acquisition to be as much as $5 billion, with that largely debt-financed.
Still, Fitch likes Disney’s business strategy to leverage its intellectual property and content across a range of platforms, including oyd theme parks and cruise lines businesses. The studio recently christened the Disney Treasure, the newest cruise ship in the Disney Cruise Line fleet and a vessel featuring Disney characters and IP in all directions, including in restaurants and bars.
“Disney is uniquely positioned to capitalize on and monetize franchises and brands across multiple platforms, which strengthens its operating and credit profile and provides the company with a sustainable competitive advantage,” Fitch reiterated.
Being able to boost its cash flow, or cash generated from operations, is expected to help make Disney a TV streaming powerhouse as Fitch forecasts the direct-to-home division will generate around $1 billion in operating income in fiscal 2025. But that still leaves Disney with a secular threat to its legacy linear TV networks, even as the studio’s streaming alternatives expand and grow, Fitch argued.
The ratings giant has a similar ‘A-‘ debt rating on Comcast Corp., with a stable outlook, as Fitch argued the media conglomerate is “the closest media comparison to Disney, given its size, scale and leverage metrics.”
At the same time, Fitch has a ‘BBB-‘ rating and a negative outlook for both Warner Bros. Discovery and Paramount Global, given those Hollywood studios are smaller than Disney and have a higher leverage ratio.
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