Source: PaxForex Premium Analytics Portal, Fundamental Insight
Investors in Walt Disney have been struggling to find positive momentum. The media giant's stock price started the Memorial Day holiday weekend at $88.29, lower than both its mid-November close of $91.80 before Bob Iger became Disney's CEO and its closing price of $88.97 on the first trading day of this year.
Currently, Wall Street analysts are not optimistic about Disney. Truist analyst Matthew Thornton has reduced his price target for the stock from $121 to $105 on Monday. Despite maintaining a buy rating on the undervalued shares, he has adjusted his earnings forecast due to the unexpected news that Disney World will close its Star Wars-themed hotel later this year.
The market's behavior may not always be rational, and in this case, the downward movement of Disney's stock seems unjustified. The company itself is faring much better than its stock as an investment. Let's review some recent developments that make Disney's stock one of my preferred choices among blue-chip stocks for the remaining seven months of this year.
- Disney continues to dominate the box office Once again, The Little Mermaid's live-action reboot claimed the top spot at local movie theaters over the weekend. Since November of last year, Disney has been responsible for five out of the six highest-grossing opening weekends in domestic theaters.
However, it's worth considering that the theatrical distribution landscape still faces challenges. The total box office earnings for all movies during the holiday weekend fell just short of $200 million, marking a 10% decline compared to both 2019 and even 2022. Critics will also highlight that the industry is still 24% below the ticket sales generated in 2019, the last pre-pandemic year.
Fortunately, the situation is gradually improving as 2023 unfolds. Moviegoers are returning to theaters, and Disney is leading the way in this resurgence. Moreover, in the post-pandemic era, Disney has additional avenues to capitalize on the success of a blockbuster film through digital distribution, offering more opportunities for revenue compared to the traditional entertainment model.
- Disney+ is showing signs of improvement in profitability
When it comes to digital distribution, Disney+ has gone through a transformation. It was once the driving force that propelled the media company's stock to an all-time high of over $200 two years ago, but it has since become a burden, dragging down the shares. However, this situation is not set in stone.
Bob Iger, Disney's CEO, has made it clear that his top priority is to make Disney+ a profitable segment by the end of fiscal 2024. This goal is fundamental to his plan to achieve $5.5 billion in annual savings before he steps down by the end of next year.
Undoubtedly, it is a challenging task. Over the last six quarters, Disney's streaming segment has accumulated an operating loss of $5.7 billion. However, in Iger's first full quarter since his return as CEO, Disney recently announced its smallest quarterly deficit for the streaming business in over a year. If the direct-to-consumer segment of Disney continues to demonstrate sequential improvement, investors will have one less concern when it comes to the House of Mouse.
- Theme parks have experienced an exhilarating journey
When the COVID-19 crisis forced the closure of Disney's renowned theme parks, it seemed inevitable that these businesses would face significant challenges. Disney World remained shut for four months, while Disneyland remained closed for over a year. Many of its international destinations also endured intermittent lockdowns.
However, reality has been more favorable than anticipated. Disney's theme park segment is currently achieving exceptional operating results. The temporary pause in operations allowed the company to enhance its monetization strategies while also fueling visitors' anticipation for their next theme park experience.
Of course, there will be hurdles ahead, including competition and concerns about a global economic downturn. Nevertheless, Disney is well-equipped to navigate these challenges. Its parks are gradually reintroducing valued experiences and perks, even with significantly higher average revenue per guest compared to pre-pandemic levels. It's evident that for Disney, the world is not as small as one might think.
While the price is below 96.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 87.59
- Take Profit 1: 84.00
- Take Profit 2: 80.00
Alternative scenario:
If the 96.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 96.00
- Take Profit 1: 99.00
- Take Profit 2: 102.00
