Walt Disney’s (DIS) theme parks are bustling yet again, after having dealt with several years of disruptions. COVID-19 was a massive challenge for Disney’s theme park and experiences division, but a more recent legal tussle with the Florida’s state leadership has significantly added to its woes. Consequently, DIS has shed more than 40% in the past 12 months. Though the downfall in the stock price might be alarming for investors, Disney seems to have a bright future given the robust intellectual property that powers its streaming business, and the return of its theme parks segment. Hence, I am bullish on DIS stock over the long-term.
On TipRanks, DIS scores a 5 out of 10 on the Smart Score spectrum. This indicates a potential for the stock to perform in-line with the broader market.
Encouraging Second Quarter
In its second quarter, Disney+ gained a whopping 7.9 million subscribers. This increase resulted in total subscriptions reaching 137.7 million, against the analysts’ expectations of 135 million. The company’s CEO, Bob Chapek, said that the solid second-quarter results, the continued growth of streaming services, and an increase in subscriptions “once again proved that we are in a league of our own.”
The increase in subscriptions became the center of attention for investors after Netflix lost more than 200,000 subscribers in its most recent quarter, recording its first-ever decline in paid users in 10 years. In contrast, Disney’s subscription business has been firing on all cylinders.
Unfortunately, Disney reported lower-than-expected second-quarter earnings. The company generated more than $19.2 billion in revenue vs. market expectations of $20 billion. However, the positive side is that the theme park revenue picked up, delivering immense growth of 105%, to $6.7 billion in the second quarter.
The company mentioned that its growth was fueled by higher room bookings, high ticket prices, more cruise ship sailings, and higher consumer expenditure on food, beverages, and merchandise. Moreover, Disney mentioned that its domestic parks are experiencing the return of international travelers, so the future remains bright.
Important to mention is that not all Disney Parks are operating full-time. Recently, Disneyland Hong Kong and Shanghai were temporarily closed due to a spike in COVID-19 cases. According to McCarthy, Disney’s CFO, the company’s operating income has been impacted due to sudden closures in Asia. Hence, the company expects its operating income to shoot upwards.
The Fun is just Getting Started
Disney’s Doctor Strange and Obi-Wan Kenobi took the market by storm. Disney+ tweeted, mentioning that Obi-Wan Kenobi was the most watched weekend premier. But Doctor Strange and Obi-Wan Kenobi are just a grain of salt compared to what Disney has in store for the upcoming year.
The company expects Thor to be a smash hit. Moreover, the launches of Black Panther: Wakanda Forever and Avatar: The Way of Water later this year hold more room for growth. Currently, Disney is doing what it is best at, and the company isn’t running out of ideas.
The future plans haven’t been too convincing for investors but the decline looks more like an opportunity given the pace of its parks and streaming businesses leading in the right direction.
Recently released films from the company, including Doctor Strange in the Multiverse of Madness and Lightyear are already among the top 10 grossing movies. Moreover, with a strong film slate ahead, expect more fireworks
Wall Street’s Take
Turning to Wall Street, DIS stock maintains a Strong Buy consensus rating. Out of 24 total analyst ratings, 18 Buys and six Holds were assigned over the past three months.
The average DIS Stock’s price target is $140.09, implying 46.14% upside potential. Analyst price targets range from a low of $110 per share to a high of $176 per share.
Bottom line –Is DIS Stock a Buy?
Disney has done a fantastic job of recovering from its pandemic lows. It continues to remain an influential media company, that continues to deliver with its strong content. This is evident in Disney+ subscriptions that have been growing at a monstrous pace, and the reopening of theme parks which adds more to its bull case.
Investors will be keenly following the second half of the year, watching the performance of some of its upcoming films. Many of its upcoming films are part of franchises that have grossed billions in revenue over the years. Hence, the development bodes incredibly well for Disney as it looks to boost its operating profits in the upcoming months.
Investors can jump into this stock and scoop it up at a reasonable price. Given the company’s pace, it could soon recover from its COVID-19 woes and reach its full potential.
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