The Walt Disney Company, more commonly known as Disney, is an American multinational media and entertainment company based in California. Brothers Walt and Roy Disney founded the company as a cartoon studio before diversifying into live-action movies, television productions, and theme parks.
I am bullish on The Walt Disney Company (DIS), as its robust growth outlook, strong backing from Wall Street, reasonable stock valuation, and competitive strengths make it look very attractive. (See Analysts’ Top Stocks on TipRanks)
Strengths
Disney had an enormous impact in the media industry and is now one of the very largest entertainment companies in the world. The company is known as a family-friendly entertainment provider. However, since the 1980s, it has created and acquired a diversified range of divisions to market more mature content.
The company’s film studio division not only includes the Walt Disney Pictures and Walt Disney Animation Studio, but also Pixar, 20th Century Studio and 20th Century Animation, Lucasfilm, Marvel Studios, and Searchlight Pictures.
It also consists of various other business units, including TV, broadcasting, streaming media, consumer products, theme park resorts, streaming services, theater, music, public, merchandising, resorts, and cruise lines across the world.
Recent Results
Disney reported revenue of $18.53 billion in its fourth quarter of Fiscal Year 2021 compared to $14.71 billion in the same quarter of the previous year. The company, however, missed analysts’ expectations of $18.78 billion. It also reported diluted earnings of $0.09 per share compared to a loss of $0.39 in the previous quarter.
The company capitalized on the consumer shift to streaming. However, its Disney + subscribers stood at 118.1 million at the end of the fourth quarter compared to the expected 119.6 million, indicating the company is adding subscribers at a slower rate than earlier in the pandemic.
This is attributed to production delays and fewer film releases, which has resulted in only a limited amount of content being distributed to the public. If you include subscribers from ESPN+ and Hulu, the company had a total of 179 million streaming subscribers on October 2.
Disney’s Parks, Experiences, and Products segments saw growth of 99.4% compared to the same quarter in the previous year, making it the second straight quarter that showed improved results after five quarters of decline. The segment consists of Disney’s theme parks, resorts, and cruise lines and was most severely impacted by the pandemic.
Before 2019, the segment made up 38.5% of the company’s yearly revenue. In 2020, the revenue had dropped to 26.1% and fell again in 2021 to just 24.6%. In the most recent quarter, the unit’s 99% growth translated to $5.45 billion in revenue.
However, it still missed operating incomes which came in at $640 million compared to analysts’ estimates of $864.4 million. The company attributed this to increased costs, including the $1 billion incurred to meet COVID-19 safety measures and governmental regulations.
Valuation Metrics
Disney’s stock looks reasonably valued right now as the forward EV/EBITDA multiple of 21.2x is slightly above its 5-year average of 18.3x, but its price-to-forward normalized earnings multiple of 34.8x is well below its 5-year average of 43.9x.
The company also has a pretty strong growth outlook, with EBITDA expected to surge by 27.7% in 2022 and continue its strong growth with a 25.9% growth rate in 2023.
Wall Street’s Take
Turning to Wall Street, Disney earns a Moderate Buy consensus rating based on 17 Buys, and six Holds in the past three months. Additionally, the average Disney price target of $204.05 implies 39.8% upside potential.
Summary and Conclusions
Disney is a leading global media and entertainment company, with very powerful brands and strong competitive positions in virtually every one of its businesses. Furthermore, the stock looks reasonably priced, the growth outlook is strong, and Wall Street is overall bullish on shares here. As a result, investors might want to consider Disney.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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