California-based Walt Disney Company (DIS) is a global entertainment and media company. It makes movies, offers online video streaming services, and operates theme parks. In an expansion move, it acquired 21st Century Fox assets for $71 billion and incurred debt in the process.
With this in mind, let’s take a look at the company’s latest financial performance and understand its risk factors. (See Top Smart Score Stocks on TipRanks)
Q4 Financial Results
Disney’s fourth-quarter revenue jumped 26% year-over-year to $18.53 billion but fell short of the consensus estimate of $18.78 billion. It posted adjusted earnings of $0.37 per share, missing the consensus estimate of $0.44 per share. (See Disney stock charts on TipRanks).
According to the new TipRanks’ Risk Factors tool, DIS’ main risk categories are Finance & Corporate and Ability to Sell, which account for 26% each of the total 23 risks identified for the stock. The company has recently updated its risk profile.
Disney tells investors that its debt increased significantly as a result of its acquisition of Fox assets. It says the debt increased further as a result of the impact of the COVID-19 pandemic. It cautions that servicing the debt could reduce funds available for running or expanding the business. The company adds that the high debt level may limit its ability to adjust to changing economic conditions and put it at a competitive disadvantage compared to other companies with less debt. Disney has suspended dividends to focus on tackling its debt first.
The high debt level has already led to the downgrading of Disney’s credit ratings. The company cautions that its credit ratings may further fall. It says that further credit rating downgrades, increase in interest rates, and volatility in the capital markets could increase its costs of borrowing. Therefore, Disney warns that it may face difficulties in obtaining financing for operations or investments in the future.
The company informs investors that protecting its systems from cyberattacks is expensive. It cautions that in spite of the investments it is making in cybersecurity, its systems could still be compromised. Disney warns that in the event of a cyberattack, it may lose revenue, face lawsuits or fines, and suffer reputation damage.
The Finance & Corporate risk factor’s sector average is at 40%, compared to DIS’ 26%.
Following Disney’s fourth-quarter earnings report, BMO Capital analyst Daniel Salmon maintained a Hold rating on the stock but lowered the price target to $180 from $195. Salmon’s reduced price target still suggests 18.94% upside potential. Shares of the company have declined about 16% year-to-date.
Consensus among analysts is a Moderate Buy based on 17 Buys and 6 Holds. The average Disney price target of $205.10 implies 35.52% upside potential to current levels.