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Should Disney's Stock Be On Your Shopping List?

By Haris Anwar/Investing.comStock MarketsSep 28, 2022 02:16PM ET
www.investing.com/analysis/should-disneys-stock-be-on-your-shopping-list-200630416
Should Disney's Stock Be On Your Shopping List?
By Haris Anwar/Investing.com   |  Sep 28, 2022 02:16PM ET
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  • Walt Disney's shares are down 36% since the beginning of the year
  • Investors fear consumers will cut entertainment spending if the economy falls into a prolonged recession
  • Despite these dangers, it's hard to ignore the strength of Disney's global franchise and the cash-generation power of its legacy businesses

The world's largest entertainment company, Walt Disney (NYSE:DIS), has endured a severe beating amid this year's market downturn. Shares of the Burbank, California giant are down 36% over the past 12 months, underperforming the benchmark S&P 500 by a wide margin.

DIS Weekly Chart
DIS Weekly Chart

There are mounting signs that Disney has been struggling with its video-streaming service, which has become the centerpiece of CEO Bob Chapek's growth strategy since its launch almost two years ago.

During its latest earnings report, Chief Financial Officer Christine McCarthy cut the growth forecast for Disney+, saying it now expects a total range of 215-245 million subscribers by September 2024, down from the company's earlier forecast of 230-260 million subscribers.

The company also raised the prices on its streaming offerings and outlined plans for a new ad-supported tier of Disney+.

Furthermore, the report made clear that most of Disney's current subscriber growth will come from international markets where the margins are already tight, especially with the U.S. dollar hovering at 20-year highs.

Disney lost $1.1 billion in its direct-to-consumer segment last quarter, widening from a loss of $293 million a year earlier. Since Disney+ launched in late 2019, the segment has lost more than $7 billion.

Diversified Business Model

Despite these challenges, it's hard to ignore the strength of Disney's global franchise and the cash-generation power of its legacy businesses. The Burbank, California-based company has an unmatched portfolio of assets that have endured many recessions and downturns—emerging stronger every time.

The latest evidence of this strength came during the pandemic when the company's theme parks, movie theaters, and resorts faced unprecedented challenges due to global lockdowns and stay-at-home orders. Now that the pandemic is behind us, Disney's cash machine is back on track, benefiting from strong pent-up demand.

Sales at the Parks, Experiences, and Products division, including Disneyland, Walt Disney World, and four resorts in Europe and Asia, reached $7.4 billion for the quarter ending on July 31, a record amount up 70% from a year earlier. The division posted profits of $2.2 billion for the quarter, up from $356 million a year ago.

DIS Revenue Growth
DIS Revenue Growth

Source: InvestingPro

Disney's diversified business model and the strength of its franchise is perhaps the main reason that most Wall Street analysts rate the stock a buy. In an Investing.com poll, about 80% of analysts rate the Disney stock a buy.

DIS Consensus Estimates
DIS Consensus Estimates

Source: Investing.com

In a note earlier this month, Morgan Stanley's analysts said they see the entertainment giant's park segment driving the majority of free cash flow and earnings before interest, taxes, depreciation, and amortization. Also, they expect Disney's content assets are "under-earning and undervalued."

Bottom Line

Disney's stock, trading lower than before the pandemic, offers an attractive risk-reward proposition to long-term investors. Given the current uncertain economic environment, it's hard to predict how much lower it can go from here.

However, there is no doubt that Disney is a great company, and its stock will recover strongly once the market finds its bottom. For these reasons, Disney is a safe bet to buy in this bear market, in my opinion.

Disclosure: At the time of writing, the author doesn't own Disney shares. The views expressed in this article are solely the opinion of the author and should not be taken as investment advice.

Should Disney's Stock Be On Your Shopping List?
 

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Should Disney's Stock Be On Your Shopping List?

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Comments (11)
Khady Dieng
Khady Dieng Oct 23, 2022 10:46AM ET
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slt sv
Mark Manley
Mark Manley Sep 29, 2022 1:57AM ET
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Only on your list of you fund wokism and social engineering of children, which is central to Disney's agenda. Sorry Disney, the $50,000 a year I used to spend on you is going to your rivals.
Mad Money
Mad Money Sep 29, 2022 1:21AM ET
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Lot of karens commenting
Meself Meself
Meself Meself Sep 28, 2022 10:13PM ET
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u a groomer brah?
Casino Crypt
CasinoCrypt Sep 28, 2022 8:59PM ET
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Not sure why we are just looking here at a couple of years . Run the 200 day moving average to get a better answers. Hurricanes and a fast stalling world economic outlook means don't buy Disney.
Keith Spiller
Keith Spiller Sep 28, 2022 8:45PM ET
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$65 or less
Jim Smith
Jim Smith Sep 28, 2022 2:51PM ET
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Absolutely not! Until they renounce their wokeness, they must experience the consequences until they learn to become politically neutral as an organization.
Brad Albright
Brad Albright Sep 28, 2022 2:51PM ET
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Only cavemen think of treating all people with dignity as political.
JIM VETTER
JIM VETTER Sep 28, 2022 2:51PM ET
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enabling mental illness doesn't entitle you to such self- righteousness
Stephen Fa
Stephen Fa Sep 28, 2022 2:51PM ET
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Bullseye. B1ble Brad and his self righteous, like a pharisee.
Kevin Mould
Kevin Mould Sep 28, 2022 2:44PM ET
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yeah it's too bad they did go woke, look at the new buzz lightyear. Wouldn't even think of watching it for free.
Danny Mee
Danny Mee Sep 28, 2022 2:39PM ET
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I'm not that sure about that,if they start earning good with NFTs this can change a lot for Disney imo
Kenneth Partyka
Kenneth Partyka Sep 28, 2022 2:30PM ET
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Answer:  NO.  Get woke. Go broke.  If you want to lose money, buy DIS
 
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