Will Disney Stock Rebound?

Walt Disney (NYSE: DIS) is down by over 28% in the past five years, and the stock is over 50% lower than its highs of just a few years ago.

Part of the reason is that attendance at the company’s theme parks has lagged. And while there was much speculation that the company’s streaming service, Disney+, would dominate, the service did not gain ground as quickly as many hoped.

That has changed with Disney’s streaming segment reaching its long-awaited profitability last quarter. The company just had a massive hit at the box office, and there are few brands that have the economic moat Disney enjoys. Plus, Disney owns Marvel, ESPN, and Star Wars, along with a host of other iconic brands and franchises.

So will all that result in a bounce back?

Why Did Disney Stock Drop?

Despite those steps forward, after Disney reported its earnings results for the fiscal third-quarter, DIS sold off a bit. The company reported revenue of $23.16 billion, which represented 3.69% revenue growth. Q3 revenue also topped the $23.07 billion that analysts expected by a slim 0.28%.

While the revenue increase was solid, Disney’s profitability really soared. Management reported income of $3.1 billion, before income taxes, which was far better than the $0.1 billion loss the company took last year. Earnings per share of $1.39 also beat analysts EPS estimate of $1.19 by 16.4%.

The biggest news was that Disney’s streaming business, which includes Disney+, Hulu, and ESPN+, became profitable a quarter before many analysts had predicted. The streaming segment was a major driver in the company’s total segment operating income improvement, it was up 19% year-over-year to $4.2 billion.

Disney+ subscribers, excluding users in India and parts of Southeast Asia, were up 1% to 118 million, even though the company previously predicted its user base would stay flat in the quarter.

Hulu subscribers also increased and grew by 2% to 51.1 million. The entertainment segment was up 4% due to streaming, offsetting a 7% decline in revenue from the company’s conventional TV channels.

ESPN has been a drain on Disney’s streaming and TV operations, and it was one of the main reasons the company’s streaming segment hasn’t been profitable. However, revenue from ESPN’s domestic and international business, excluding India, increased by 5% in Q3. Advertising was the main driver in ESPN’s turnaround, and a domestic ad sales increase of 17% fueled the 4% rise in ESPN’s operating income to $1.1 billion.

Will Disney Stock Go Back Up?

To continue the revenue drive, Disney announced it would increase the price of its streaming services by $1 to $2 per month.

The company has also made deals with other streaming platforms, such as Fox and Warner Bros. Discovery, to create bundles and fuel sales. Much like Netflix, Disney has also cracked down on password sharing, which has increased streaming revenue.

After a disappointing string of films at the box office, the company had a massive hit with Inside Out 2, which became the highest-grossing animated film of all time. Disney credited anticipation for the new movie as the driving force behind 1.3 million Disney+ sign-ups, as users joined the platform to catch up on the first Inside Out.

Though Disney’s entertainment division is picking up steam, the company has seen flat attendance at its theme parks, and a slight slowdown in the U.S.

Operating income from U.S. parks was down 6%, which Disney attributed to inflation and the cost of providing new offerings but revenues for the company’s Experiences unit, which includes all of Disney’s parks as well as its cruise lines, was up 2% to $8.4 billion.,

Despite the U.S. slowdown, Disney is forging ahead with plans to build massive additions to its parks. The company plans to spend $60 billion dollars to add new lands to its theme parks that will leverage some of Disney’s most iconic properties, such as Monster’s Inc., Avatar, and the Avengers.

How Do Analysts Rate Disney Stock?

Though investors were unimpressed by the company’s Q3 results, Wall Street analysts still appear to have faith in the Mouse House.

Out of 33 analysts who have rated the stock, 23 assess it to be a Buy. The highest price target is $133 per share, which would be a 38.2% increase from where the stock currently trades.

The average forecast is $110 per share, which represents a 14.5% increase over the next 12 months.

There are 9 Hold ratings and one Sell rating on DIS. The lowest forecast has Disney shares plummeting 34.5% to $63.

Will Disney Stock Rebound?

While the analysts believe Disney is due to rebound with upside to $110 per share, the stock doesn’t appear to be undervalued at its current price-to-earnings ratio of 36.9x. That earnings multiple is well above the S&P 500’s 26.7x. However, Disney shares currently have a price-to-sales value of 2x, while the index has a P/S of just above 3x.

Disney’s return to profitability also means the company paid a dividend to its faithful investors. The company paid $0.45 per share in July, which equates to a 0.95% annual dividend yield.

Is Disney Stock a Buy, Sell, or Hold?

If Disney can continue to drive its streaming sales and make headway at the box office, investors may well be in for more than a paltry dividend down the road. Certainly, the effects of inflation are likely to affect consumers into 2025, so the company might continue to face stagnant theme park sales in the near future.

However, if the company is able to create compelling experiences, Disney could be in prime position to benefit if economic pressures ease. The entertainment company has a moat that is nearly impenetrable, and if it can capitalize on its intellectual properties and build synergy with its streaming services, Disney certainly might be due for a rebound, especially after the recent selloff.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.