The good news is that Walt Disney (DIS -0.01%) is no longer trading lower this year. The bad news is that shares of the entertainment giant are only 7% higher in 2023 through Wednesday's close, still losing sorely to the bubbly market.
Investors aren't exactly impressed with the House of Mouse these days. Analyst profit targets have been heading lower in recent weeks, contrasting the buoyancy in more popular stocks. Analysts see revenue climbing a mere 4% for this new fiscal year as well as 2025. However, things can -- and ideally should -- change. Let's go over some of the reasons why now might be a great time to buy Disney stock like there's no tomorrow.
1. The valuation makes sense
Compare Disney's fundamentals today to what they were when the stock peaked nearly three years ago at more than double today's price and it's as goofy as, well, Goofy. Revenue has soared 36% in that time, and the profitability picture is even brighter. Disney stock is trading for a reasonable 21 times this new fiscal year's projected net income. The multiple drops to less than 18 if you look out to next year's analyst consensus.
It's been a long time since you were able to pick up shares of Disney for a year-ahead P/E ratio in the teens. For a consumer-facing company where so many components rely on folks feeling financially comfortable to spend money on leisure and entertainment, the stock is historically cheap for an obvious winner in an improving economy.
Image source: Disney.
2. Streaming is no longer a headwind
The initial success of Disney+ is why shares of the media stock bellwether took off less than a year into the pandemic. It's been a drag over the last two years, as investors fret about losses at Disney+, Hulu, and ESPN+. Disney has vowed to turn its streaming business profitable by the end of this new fiscal year, a game changer for the bears that have been ticking short interest near a four-year high lately.
A combination of Disney cutting costs, raising prices for its premium ad-free formats, and introducing cheaper ad-supported streaming services is finally starting to bear fruit. The direct-to-consumer streaming segment that delivered a $4 billion operating loss in 2022 and improved to a still unacceptable $2.6 billion loss in the recently concluded fiscal 2023 is no longer buffering. The segment's operating deficit contracted to $387 million in its latest quarter, and Disney continues to reiterate it will get out of the red by the end of September.
3. It's a big world after all
One Disney business that is already substantially ahead of pre-pandemic levels is its industry-leading theme parks. Higher admissions and premium visit-enhancing add-ons have positioned Disney World and Disneyland to succeed even when turnstile clicks slow.
Average revenue per daily guest is 40% higher than it was in 2019. The segment's record trailing performance finds it spending more on its gated attractions, even at a time when it's paring back its expenses elsewhere. Disney announced in September that it will roughly double the capital expenditures for its theme parks, cruise lines, and other experiences to $60 billion over the next 10 years. With Disney's experiences segment accounting for 37% of the revenue in fiscal 2023 but 70% of the operating profit it's easy to see why it's investing heavily to build on that success. Have you noticed that the country's two largest cruise line operators have seen their stocks more than double this year?
4. Content is still king
With CEO Bob Iger already making headway on his initial promise to turn its streaming business around, his desire to improve on Disney's recent content woes is no longer on the back burner. Disney has had an uncharacteristically bad run at the box office with more flops than hits. It also needs to feed its streaming services with more magnetic content.
It wasn't an easy task to tackle when writers and the Screen Actors Guild were striking, but with both of those disputes out of the way Iger is ready to earn his extended term. You won't see the results right away. Disney had to bump some releases deeper into the calendar. It's bringing some of its pandemic-era direct-to-Disney+ releases to big screen, with Soul, Luca, and Turning Red hitting theaters for the first time in the next three months. They won't earn much, and bears will celebrate the head fake. The real results will come later as Iger aims to regain the magic touch that was par for the course in his first stint at the helm.
5. The dividend is back
Disney restored is semiannual payouts this month. You aren't likely to buy the stock for its meager 0.7% yield, but it will attract income investors and likely improve shareholder turnover.
More importantly, the dividend coming back after four years is a sign that nature is healing at Disney. The new fiscal year that started in October promises payouts, explosive bottom-line growth, and a return to Disney's core strengths. The stock chart may not look like a fairy tale, but today's investors could be ready to live happily ever after at today's prices.
