After Walt Disney Co. reported fiscal second-quarter profit that surpassed estimates Tuesday morning, one senior analyst says the company is facing constructive improvements that can clear the way for “long-term earning power.” 

During an interview with BNN Bloomberg on Tuesday, David Joyce, senior analyst at Seaport Research Partners, called Disney’s most recent earnings report “a mixed bag.”

“It did have some positive surprises such as the direct-to-consumer streaming business achieving profitability two quarters earlier than expected,” he said. “But there are also higher expenses at the other divisions than expected.” 

Earnings per share at the entertainment company rose to US$1.21, according to Disney, surpassing estimates, but revenue fell short on projections, particularly in the area of streaming subscriptions with Disney+.

“Really, what I think it boils down to is that this next quarter coming up is going to be a soft one again for different timing of events affecting the sports profitability, (and) some different events affecting the streaming profitability,” Joyce said. 

He added that Disney’s outlook looks brighter for the company’s fourth quarter, which ends in September. “That’s when they’ll start cracking down on the password sharing, which definitely helps the subscriber numbers and the revenue,” he said, referencing the success of Netflix, which started enforcing password-sharing limitations nine months ago. 

Joyce mentioned that theme parks, which account for a major portion of Disney’s profit, will “have some better comparability in the fourth quarter.”

He also said he believes Disney shares are being undervalued following the revenue miss, adding that he thinks “the stock is closer to $128 than the $106 that it’s at now.”

“The franchises here are extremely valuable when you think of the long term earnings power. The theme parks are driving the profitability,” Joyce said.

“They’re still seeing strong demand, although they did say they’re getting back to normalized demand instead of the double digit growth they were seeing post-COVID, but the demand for all the new attractions is still there. That’s really the case for all of their theme parks. That’s one thing that’s supporting longer term valuation metrics.”

As Disney adjusts to a profitable streaming service, Joyce says investors are going to start contemplating long term profitability and what Disney+ will mean for the future of the entertainment industry. 

“I do think there is upside in the shares,” he said. “I would take advantage of this pullback, looking for this to be decently higher within three to six months from now.”

To watch the rest of Joyce’s interview with BNN Bloomberg, click on the video above.