It hasn’t been smooth sailing for Disney shareholders in recent years.
With its iconic franchises and well-known characters, Walt Disney (DIS 0.29%) is a company most people are familiar with today. But that doesn’t mean it has turned out to be a great investment. In fact, over the past decade the shares have produced a total return of only 14%, seriously lagging the broader S&P 500 by a wide margin. As of this writing, the top media stock trades 57% below its peak price from early 2021.
Could Disney be a no-brainer investment right now on the dip?
Encouraging results
Disney has some momentum on its side. That’s because the business just reported better-than-expected financial results for its fiscal 2024 third quarter (ended June 29). Revenue of $23.2 billion was up 4% year over year, driven by 2% growth in the Experiences segment and 4% growth in the Entertainment division, which houses the company’s various media assets.
Not only that, but Disney saw its bottom line do even better. Adjusted earnings per share (EPS) soared 35%. Management reiterated its aim to identify and execute on major expense reductions totaling $7.5 billion. “We’re going to continue to go after it aggressively as we can to both deliver the bottom line and to invest back in the business with all the great opportunities we have,” CFO Hugh Johnston said on the Q3 2024 earnings call.
The leadership team’s optimism shined through when they upped full-year adjusted EPS guidance. They now expect that figure to be 30% higher than in fiscal 2023.
Making the transition
Perhaps the biggest factor weighing on Disney shares is the uncertainty regarding how the business will manage the ongoing industry transition from traditional cable TV to one dominated by streaming. On the one hand, a valid argument can be made that Disney+’s launch in November 2019 was a bit too late, as Netflix‘s monster success up to that point was already proving that streaming was going to be the main way people watched video entertainment.
On the other hand, though, the company’s progress thus far deserves some credit. Combined, all of Disney’s streaming properties — which include Disney+, Hulu, and ESPN+ — reported operating income of $47 million, a big improvement from the $512 million loss in the year-ago period. This was boosted by a revenue jump of 15%.
With 154 million subscribers, the flagship Disney+ service looks like it’s already one of the winners in the global streaming wars. And with the planned launch of a stand-alone ESPN streaming app in 2025, it’s hard to envision a world in which Disney doesn’t attract more subscribers.
“We remain on track for the profitability of our combined streaming businesses to improve in Q4,” the latest press release reads.
While Disney’s linear business continues to be a melting ice cube, as households ditch their cable subscriptions, it’s still a moneymaker. In the latest fiscal quarter, revenue dipped 7% year over year. But the division raked in almost $1 billion in operating income, good for a fantastic margin of 36%.
Zoom out
Seeing a stock down 57% in the past three-and-a-half years is hard to stomach. However, it’s still easy to be bullish. Disney’s powerful brand recognition and distinctive intellectual property (IP) has so much value. Plus, there’s no company in the media and entertainment industry that can monetize this IP quite like Disney can, whether it’s through the box office, linear channels, streaming platforms, theme parks, or consumer products.
With shares trading at less than 18 times Wall Street’s fiscal 2024 forecast adjusted EPS and under 16 times fiscal 2025’s outlook, I believe Disney looks like a no-brainer buying opportunity right now.
Neil Patel and his clients have positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool has a disclosure policy.