Disney’s Debt Rating Outlook Stable But Fitch Flags Theme Park, Cruise Line Investments

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Disney is in a good position to manage its debt levels. 

According to Fitch Ratings, they maintained the credit rating of Walt Disney Company at ‘A-‘ on Tuesday, with a stable outlook. However, they cautioned that forthcoming investments in the expansion of Disney theme parks and cruise ships may strain cash flow and hinder future profit growth.

Fitch predicts several obstacles will limit the immediate enhancement of credit due to substantial investments in theme parks and cruises, resulting in reduced anticipated Free Cash Flow (FCF). The agency also warned about Disney prioritizing dividend increases and share buybacks over faster debt reduction, and suggested that the final payment to Comcast Corp. for the Hulu acquisition might reach up to $5 billion, with a large portion of it being borrowed.

Nevertheless, Fitch appreciates Disney’s approach to capitalize on their intellectual property and content across various platforms such as theme parks, cruise lines, and more. Recently, Disney launched the Disney Treasure, the latest addition to their cruise line fleet, which is adorned with Disney characters and intellectual property in every corner, even in restaurants and bars.

Fitch emphasized that Disney has a special ability to make money from and expand its franchises and brands over various channels, which boosts both its operational and financial standing and gives it a long-term competitive edge.

It is anticipated that improving its cash flow from operations, potentially reaching approximately $1 billion in operating income for fiscal 2025 in its direct-to-home division, will aid Disney in becoming a dominant force in TV streaming. However, this does not alleviate the long-term challenge to Disney’s traditional linear TV networks, as Fitch suggests, despite the expansion and growth of Disney’s streaming services.

A prominent rating agency assigns Comcast Corporation a comparable ‘A-‘ debt rating, maintaining a steady perspective. Fitch suggests that Comcast, due to its size, scope, and financial leverage, bears the closest resemblance to Disney among media conglomerates.

Currently, Fitch rates Warner Bros. Discovery and Paramount Global with a ‘BBB-‘ grade, and they’ve assigned a negative outlook to both companies. This is due to the fact that these Hollywood studios are relatively smaller compared to Disney and carry a higher debt-to-equity ratio.

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2025-01-15 01:54