Walt Disney (NYSE:DIS) finds itself in a challenging spot in 2023, despite the return of CEO Bob Iger late last year, tasked with navigating a volatile economic landscape. The intended turnaround has proven frustratingly slow for investors, with DIS seeing a 32% decline from its early 2023 highs and now down 7.7% on a year-to-date basis. This performance significantly lags behind the broader S&P 500 Index ($SPX), which still boasts an 8.2% gain for the year.
Taking a longer-term perspective, Disney’s stock has plummeted by 60% from its all-time highs in 2021, resulting in a market capitalization of $147.46 billion. The downturn has left Disney’s shares trading close to nine-year lows, raising questions about the company’s ability to recover or if DIS will continue on a downward trajectory.
The Modern Disney Business Model
Disney stands out as one of the world’s most recognizable brands, fortified by a strong competitive advantage. Its storytelling prowess has allowed it to expand into various businesses, such as theme parks, and leverage its vast content library and a growing portfolio of films to enter the competitive online streaming market. Disney competes with industry giants like Netflix (NFLX) and Amazon (NASDAQ:AMZN) Prime Video, engaging with consumers across generations in a unique way.
Disney’s theme park business remains resilient and contributes significantly to revenue growth. CEO Bob Iger highlighted that Disney World continues to perform exceptionally well, surpassing pre-COVID revenue levels by 21% and operating income by 29% compared to fiscal year 2019.
Disney’s loyal and highly engaged customer base has also allowed the company to raise subscription prices for its streaming segment. While losses in the streaming business have impacted investor sentiment, Disney anticipates a return to profitability in fiscal year 2024.
Challenges Behind the Stock
Decline Like many other companies, Disney faces challenges related to rising costs in an inflationary environment. In the first nine months of fiscal year 2023, Disney reported a 9% year-over-year decline in adjusted earnings per share, influenced by reduced enterprise ad spending and streaming business losses.
Disney’s strategy for fiscal year 2024 includes reducing expenses by nearly $6 billion. Analysts project a 5.2% year-over-year increase in sales to $88.27 billion in fiscal year 2024, with adjusted earnings expected to surge by almost 30%.
In recent developments, Disney has emphasized its intention to divest non-core assets to enhance liquidity and invest in growth projects. A deal is reportedly in progress to sell a controlling stake in its Indian operations to Reliance Industries for $10 billion. Disney India had 40.4 million subscribers at the end of Q2, but its average revenue per subscriber (ARPU) in India is considerably lower at $0.59, in contrast to the global average of $6.58.
Wall Street’s Expectations for Disney Stock
Disney’s stock is currently trading at 1.7 times forward sales and 18 times forward earnings, a reasonable valuation considering earnings are estimated to grow by 24% annually between fiscal years 2024 and 2028.
Among the 26 analysts covering Disney stock, 17 recommend a “strong buy,” two suggest a “moderate buy,” six advocate a “hold,” and one recommends a “strong sell.” The average target price for Disney stock stands at $108.57, a 35% increase from the current trading price, representing territory DIS hasn’t occupied since mid-February.
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