Disney has been heavily investing in its theme parks with projects such as the upcoming “Pandora: World of Avatar” attraction.
Once these projects are complete, analysts believe the returns will be substantial.
“We believe this growth potential in Parks cashflow is often overlooked by investors,” the note said.
Credit Suisse analysts estimate that Disney’s theme park cashflow could triple — reaching $US2.7 billion — but only if its investment to sales ratio can return to previous levels.
“With construction of two Star Wars lands, a Toy Story Land and two new cruise ships underway, [investment costs are] unlikely to change in the next two years,” the Credit Suisse analysts said, “but at some point it seems logical to expect capital intensity to normalize.”
Last year, theme park capital expenditures — the cost of upgrades to physical assets like buildings and equipment — cost Disney a quarter of what the parks were making in sales. That 25% rate was up from 16% from 2004-2016.
And while the new “World of Avatar” attraction cost Disney $US500 million, Credit Suisse believes it will be money well spent.
“The centrepiece is a 3D augmented reality flying simulator called Flight of Passage, which we believe will become the ‘go-to’ attraction at Walt Disney World, further enhancing attendee demand and Disney’s ability to drive up per cap spending.”