In a notable move, James Gorman, the executive chair of Morgan Stanley (NYSE:MS) and a newly appointed board member of Walt Disney (NYSE:DIS), recently acquired over $2 million worth of Disney stock on May 8. This substantial insider purchase, the first for Disney this year, has garnered significant attention as the company navigates shifting consumer preferences and fierce competition in the streaming sector.
Gorman’s purchase closely followed Disney’s May 7 earnings report, which, despite showcasing the company’s first profitable quarter in its streaming business, fell short of revenue expectations and led to a stock sell-off. This development is crucial amid the intense “streaming wars” with major competitors like Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN), and Apple (NASDAQ:AAPL). According to a PwC study, the global streaming market is projected to reach $75.5 billion by 2027, growing at a compound annual growth rate (CAGR) of 7.2% from 2023 to 2027.
Disney has remained in the spotlight throughout the year, partly due to its high-profile proxy battle with Nelson Peltz. Although a streak of quarterly revenue misses has raised concerns, Gorman’s substantial insider purchase is intriguing, given his Wall Street credentials. Should investors follow his lead? Let’s examine Disney’s stock performance.
DIS Stock Performance
The Walt Disney Company (NYSE:DIS) has struggled over the past three years, with its stock down 40%. However, it has shown recent signs of recovery, gaining 13.6% in the last 52 weeks and 14.5% year-to-date. This is notable considering a 16.5% decline from its late-March highs.
Is DIS Stock a Good Value?
Disney’s shareholder returns have experienced fluctuations, particularly with its dividend payments. After pausing dividends, Disney reinstated its semi-annual dividend in 2023, starting with a $0.30 per share payment in January 2024. Recently, Disney announced a 50% increase in its semi-annual dividend to $0.45 per share, payable on July 25, bringing the total annualized dividend to $0.90 per share, with a current yield of about 0.87%.
With a robust market capitalization of about $188.5 billion, Disney is valued at a forward Price-to-Earnings (P/E) ratio of 21.72, nearly 50% below its historical average over the last five years. Similarly, its forward Price/Sales (P/S) ratio is 2.06, compared to an average of 2.99. These valuations likely influenced Gorman’s decision to purchase 20,000 shares at an average price of $106.03 each, totaling over $2.1 million. Before this purchase, Gorman owned fewer than 500 Disney shares. The last significant insider buy at Disney was in 2002, when then-Chair Michael Eisner purchased $9.8 million worth of shares.
Inside Q2 Earnings at DIS
Disney’s fiscal Q2 2024 report was mixed. The company reported adjusted earnings per share (EPS) of $1.21, surpassing analysts’ expectations of $1.10. However, its revenue of $22.1 billion missed forecasts of $22.08 billion, marking its fourth consecutive revenue miss. Despite this, Disney raised its full-year EPS growth forecast to 25%, up from the previous 20%. Analysts expect 26.6% EPS growth this fiscal year, reaching $4.76. Disney anticipates generating around $8 billion in free cash flow for the fiscal year, nearing pre-pandemic levels.
What’s Driving Growth at Disney?
Disney’s latest cinematic release, “Kingdom of the Planet of the Apes,” debuted spectacularly, earning $56.5 million in its opening weekend in the U.S. and reaching a global total of $129 million. Beyond movies, Disney has partnered with Walmart (NYSE:WMT) to enhance digital advertising effectiveness. Announced the same day as Gorman’s stock purchase, this collaboration aims to innovate and seize new growth opportunities in digital advertising.
Disney is also expanding in the digital and gaming realms through a $1.5 billion collaboration with Epic Games, co-creating a new games and entertainment universe using Epic’s Fortnite platform. On the parks and resorts front, Disney secured a $735 million five-year commercial mortgage-backed securities (CMBS) term loan to refinance three major properties: the Walt Disney World Swan, Dolphin, and Swan Reserve. This deal, brokered by JLL’s Hotels and Hospitality Group with lenders Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and Goldman Sachs (NYSE:GS), highlights Disney’s commitment to upgrading its iconic resorts.
Furthermore, Disney’s influence is growing globally with the merger of its Indian TV and streaming assets with those of Reliance Industries, creating an $8.5 billion entertainment powerhouse. This strategic move positions Disney ahead in one of the world’s most populous and rapidly growing markets.
What Do Analysts Expect for DIS Stock?
The investment community is largely bullish on Disney’s stock. Among 27 analysts, 18 recommend a “strong buy,” 4 suggest a “moderate buy,” 4 advise a “hold,” and only 1 recommends a “strong sell.” The consensus rating has improved to “strong buy” from “moderate buy” a few months ago. The mean target price is $126.96, indicating a potential upside of about 22.8%.
In conclusion, despite some challenges, Disney is showing signs of a strong comeback. With insider and analyst confidence, strategic partnerships for future growth, and a promising financial outlook, Disney may be poised for another rally. If you’ve been considering Disney stock, Gorman’s recent purchase might be a compelling signal to buy.
Featured Image: Megapixl ©Szilkov
