Source: PaxForex Premium Analytics Portal, Fundamental Insight
The positive update is that Walt Disney has halted its downward trend for the year. However, the drawback is that the shares of the entertainment giant have only gained 7% in 2023 as of the close on Wednesday, significantly underperforming the exuberant market.
Investor sentiment toward the House of Mouse is currently lukewarm. In recent weeks, analyst profit projections have been on the decline, a stark contrast to the optimism surrounding more popular stocks. Analysts are forecasting a modest 4% increase in revenue for both the current fiscal year and 2025. Despite the current scenario, there are compelling reasons to consider buying Disney stock at this juncture, potentially presenting an opportune moment for investors.
Compelling Valuation Metrics
Evaluating Disney's fundamentals today against its peak nearly three years ago reveals a stark contrast, emphasizing a rational investment opportunity. Over the mentioned period, revenue has surged by 36%, presenting a more robust profitability outlook. Disney's current stock valuation stands at a reasonable 21 times the projected net income for this fiscal year, dropping to less than 18 when considering next year's analyst consensus. This places Disney at an attractively low price point, historically rare for a consumer-facing company poised to benefit from improved economic conditions.
Streaming Challenges Overcome
The initial success of Disney+ fueled optimism during the pandemic's early days, but concerns emerged as losses mounted in its streaming services. Disney's commitment to achieving profitability in its streaming business by the end of this fiscal year is reshaping the narrative. Cost-cutting measures, premium ad-free format price increases, and the introduction of more affordable ad-supported streaming options are beginning to yield positive results. The direct-to-consumer streaming segment, which reported a $4 billion operating loss in 2022, improved to a $2.6 billion loss in fiscal 2023 and is on track to exit the red zone, with the latest quarter's operating deficit shrinking to $387 million.
Expanding Theme Park Success
Disney's theme park business, a significant driver of revenue, has not only recovered from pandemic lows but has surpassed pre-pandemic levels. Theme parks like Disney World and Disneyland are experiencing increased average revenue per daily guest, up by 40% compared to 2019. Despite cost-cutting measures in other areas, Disney has announced a substantial investment of $60 billion over the next decade to enhance theme parks, cruise lines, and other experiences. With the experiences segment contributing 37% of fiscal 2023 revenue and a substantial 70% of operating profit, this strategic investment aims to build on the segment's exceptional performance. Notably, similar success stories are evident in the cruise line industry, where major operators have seen their stocks more than double this year.
Revitalizing Content Excellence
Amid recent content challenges and a string of box office disappointments, CEO Bob Iger is actively addressing Disney's content strategy. Recognizing the need for more compelling content for both traditional and streaming platforms, Iger is committed to turning the tide. Overcoming hurdles like writer and Screen Actors Guild strikes, Disney is now poised to deliver a renewed content strategy. While some releases were postponed, key pandemic-era Disney+ films, including Soul, Luca, and Turning Red, are transitioning to theaters in the coming months. Although initial box office returns may be modest, the true impact will unfold as Iger strives to recapture Disney's historical prowess in content creation.
Dividend Resurgence Signals Stability
Disney recently reinstated its semiannual dividends, marking a significant turnaround after a four-year hiatus. While the modest 0.7% yield may not be the primary attraction for investors, it holds appeal for income-focused investors and contributes to enhanced shareholder engagement. The return on dividends serves as a positive indicator, signaling a broader recovery at Disney. As the new fiscal year unfolds, the promise of consistent payouts, robust bottom-line growth, and a return to Disney's core strengths positions the company for a narrative shift. Despite the current stock chart not resembling a fairy tale, investors at today's prices could be on the brink of a happily-ever-after scenario.
As long as the price is above 90.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 93.48
- Take Profit 1: 96.00
- Take Profit 2: 99.00
Alternative scenario:
If the level of 90.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 90.00
- Take Profit 1: 87.00
- Take Profit 2: 85.00
