Walt Disney Company (NYSE:DIS) witnessed a remarkable surge in its shares last week following the release of its fiscal first-quarter 2024 earnings. Experiencing its most impressive trading day in over three years, the company’s announcements coupled with the tangible results of CEO Bob Iger’s turnaround strategy sparked investor enthusiasm.
While Disney stock struggled to keep pace with the markets last year, facing consistent underperformance, the recent post-earnings rally has propelled DIS shares to a 22% year-to-date increase, outshining the S&P 500 Index ($SPX) by a significant margin. Here’s why the prospects for Disney stock appear even brighter in the coming years as Iger’s revitalization efforts gain momentum.
Significant Announcements in Fiscal Q1 Earnings Call
Disney’s fiscal Q1 2024 earnings call marked the fifth under Iger’s leadership, drawing praise akin to an “Oscar-worthy performance,” as summarized by a Fortune article. Financially, the company’s adjusted earnings per share (EPS) of $1.22 surpassed analysts’ expectations of $0.99, with a projected full-year EPS growth of at least 20% year-over-year.
Of particular note, Disney’s streaming losses, which peaked at $1.47 billion in the fiscal fourth quarter of 2022, notably narrowed to $216 million in the fiscal first quarter of 2024. This reduction in streaming losses played a pivotal role in the decision to replace former CEO Bob Chapek and reinstate Iger, who prioritized profitability over sheer subscriber growth.
Additionally, Disney unveiled several significant announcements during the earnings call, including:
- A 50% increase in the semi-annual dividend and the initiation of a $3 billion share buyback program, the first since 2018.
- A $1.5 billion investment in Epic Games, the publisher of the globally popular video game Fortnite.
- The forthcoming launch of a sports streaming platform in collaboration with Fox and Warner Bros. Discovery (WBD), alongside the reiteration of plans to launch an ESPN streaming service by 2025.
- Exclusive streaming rights for Taylor Swift’s concert film “Taylor Swift: The Eras Tour (Taylor’s Version)” and the anticipated release of the animated sequel to “Moana” in November, aimed at revitalizing Disney’s box office performance.
Market Reaction and Forecast
The stellar performance of Disney’s earnings impressed analysts, prompting Needham to upgrade the stock from “Hold” to “Buy” and raising the target price to $120. Overall, analysts maintain a “Moderate Buy” rating on Disney, with a mean target price of $109.05, roughly in line with the current stock price. However, the highest target price of $130 reflects a nearly 20% upside potential from Friday’s closing prices.
Potential Upside for Disney Stock
Disney’s turnaround journey has just commenced, suggesting further upside potential if the company continues executing its strategy, including achieving the targeted $7.5 billion in cost savings. The eventual profitability of Disney’s streaming segment and a renewed focus on quality content over quantity in its movie franchise could further bolster sentiment toward the entertainment giant.
Trading at a next 12 months price-to-earnings multiple of 22.3x, Disney shares appear reasonably valued, especially considering the anticipated earnings growth. Moreover, the company’s earnings growth trajectory could unfold over multiple years, driven by cost efficiencies, streaming profitability, and a revival of its movie business.
Disney’s substantial investments in its lucrative parks, totaling $60 billion over the next decade, aim to address concerns regarding service quality and wait times, signaling a commitment to enhancing visitor experiences.
Conclusion
Disney’s ongoing turnaround efforts suggest that the stock has significant potential for appreciation in the coming years, driven by earnings growth and a potential expansion of its valuation multiples.
Featured Image: Unsplash
