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Disney Stock Could Be Entering Deep Value Territory
Stock Analysis & Ideas

Disney Stock Could Be Entering Deep Value Territory

Shares of entertainment kingpin Disney (DIS) are down 12% year-to-date. With COVID-19 cases weighing down the firm’s parks business, it has undoubtedly been the perfect storm.

The latest weakness in Netflix’s (NFLX) subscriber growth numbers sent further shockwaves through the industry. Still, investors were already bracing themselves for more muted growth over at Disney+, even in the face of a pretty strong content lineup for 2022.

So much for streaming woes already being baked in. I’m bullish on Disney stock.

Netflix’s Quarterly Flop Drags Down Disney Stock

Netflix CEO Reed Hastings admitted competition in the space was a reason for slower subscriber growth numbers and a weaker outlook. Combined with tough comparables and it’s not a mystery as to why NFLX stock sunk after announcing its numbers.

Did Disney stock deserve to take a pummeling too? Or could better-than-expected pick-up in Disney+ subscribers be a reason for Netflix’s underwhelming subscriber forecast miss?

While there’s no way of knowing for sure at this juncture, I wouldn’t discount the latter scenario.

Given all that’s been negative at Disney and its own downbeat guidance about its streaming service, investors appear to be bracing themselves for a potential brutal quarter of its own.

With all the new, intriguing content live on Disney+ lately, I wouldn’t at all be surprised if viewers look to pause their Netflix subscriptions to catch up with the new content over at Disney’s streaming platform.

With Netflix raising prices and making a move into the video-gaming world, it’s clear that the firm is going to have to pivot if it’s going to keep its growth alive in a market that’s growing crowded.

Whether or not Netflix can retain the crown in video streaming remains to be seen. Given Disney’s content roadmap, though, the streaming wars could be about to heat up in a big way, making the contrarian case for DIS stock that much more interesting for the rest of 2022.

Disney Stock: Low Bar Ahead

With such a low bar set ahead of Disney’s coming quarter and expectations of growth for its Disney+ platform, I do think that the crowd will be more forgiving if the House of Mouse were to clock in more underwhelming numbers on the streaming front.

Further, as Omicron cases wind down, investors may be missing the tailwind of a potential sustained economic reopening in 2022. The parks business seems long overdue to make a big move towards normalization.

Although COVID-19 will still be around in most bull-case scenarios, there’s a good chance that parks and cruises may be in a spot to make a move towards greater normalcy. While pre-pandemic levels of normalcy are highly unlikely for the year, things could become more normal as time goes on and the pandemic looks to shift into an endemic.

Such a continued push to greater normalcy would be hugely beneficial to Disney. Yet, investors still seem more focused on Disney+ at this juncture, especially as headwinds mount. Just because Netflix flopped doesn’t necessarily mean Disney will miss its already lowered expectations for subscriber growth over at Disney+.

At the end of the day, strong content lineups will win out.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, DIS stock comes in as a Moderate Buy. Out of 22 analyst ratings, there are 15 Buy recommendations and seven Hold recommendations.

The average Disney price target is $195.35. Analyst price targets range from a low of $165 per share to a high of $229 per share.

Bottom Line on Disney Stock

Arguably, Disney+ has the better lineup right now. With Netflix raising its subscription prices, the value proposition of Disney+ could shine through as consumers become more willing to flip-flop between video-streaming platforms over time based on what there is to binge-watch.

For that reason, Disney stock looks like a compelling contrarian value. The potential catalyst of a 2022 reopening and better-than-feared numbers at Disney+ could set the stage for a nice relief rally. Of course, let’s not forget about Disney’s plans for the metaverse.

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