Shares of media entertainment kingpin Disney (DIS) have been trending lower of late alongside almost everything else in the market.
Disney’s first quarter was pretty magical, with strength in the video-streaming business and meaningful signs of improvement in parks.
COVID was one of Disney’s worst headwinds to date. With an endemic in sight, though, there are reasons to believe that COVID headwinds could be replaced by tailwinds, as pent-up demand for experiences can be met for years to come.
With early evidence of a recovery from COVID in the books and better-than-feared results on the streaming side, I remain as bullish as ever on Disney stock.
Reopening Upside May Still Be Discounted
Disney’s first-quarter revenues surged 34%, with EPS numbers skyrocketing in the triple digits. Undoubtedly, such growth numbers are unsustainable over the long haul. That said, a move into endemic could cause such numbers to power higher for another several quarters.
Undoubtedly, the main question on investors’ minds is what variant comes after Omicron. Despite the groundbreaking success of Disney+, DIS stock remains very much a reopening play that will move based on news relating to the next steps of this pandemic.
The coronavirus is unlikely to be gone for good, but seasonal vaccines could help propel COVID-19 into the endemic stage. For Disney’s parks and cruises, such an environment should be good enough for the recovery to make a move towards, and perhaps beyond, pre-pandemic levels.
Disney+ Could Dethrone Netflix
When Netflix (NFLX) flopped after its recent quarterly results, CEO Reed Hastings was quick to point the finger at the competition as a major reason behind the miss.
Many big-media and tech firms have followed Disney’s lead into the space. Still, very few firms can stack up with Disney and its very deep content library.
Marvel films and shows have been wildly popular with Netflix viewers. With Disney slated to pull even more such shows off Netflix, Disney+ may finally be able to tilt the tables in its favor.
Disney has the enviable brands, and it’s not backing down from its content-spending plan, which could continue to pressure its rival Netflix. Disney+ has proven itself a worthy challenger in the direct-to-consumer (DTC) streaming space.
As the company continues spending considerable sums in the production of DTC content, I suspect eclipsing Netflix as the streaming king at some point down the road is a possibility, perhaps even a likelihood.
For now, Disney’s margins are going to continue taking a hit. Content production and overseas expansions will not come cheap. However, I suspect such initiatives will pay off in the long haul.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, DIS stock comes in as a Buy. Out of 19 analyst ratings, there are 14 Buy recommendations and five Hold recommendations.
The average Disney price target is $193.89, implying an upside of 31.9%. Analyst price targets range from a low of $165 per share to a high of $229 per share.
Bottom Line
There’s tremendous uncertainty surrounding Disney, with margins to take a hit over the medium term while COVID pressures continue to weigh.
Still, the longer-term future seems so bright. The company is getting aggressive with its Disney+ platform. As the pandemic gradually turns endemic, we could see the perfect storm of tailwinds proceed what’s been a headwind-plagued past couple of years.
CEO Bob Chapek is doing a fantastic job. If Disney can dethrone Netflix while continuing to benefit from the return of the “experiences” tailwind, the upside could be considerable.
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