Case Study: Disney (DIS) stock according to high performing analysts
Key Points
Performance
Disney (DIS) shares fell by 1.87% this week. However, on a year-to-date basis, Disney shares are up by 21.46%. This compares favorably to the S&P 500, which is up by 6.96% during 2023 thus far.
Event & Impact
Disney posted fiscal 2023 Q1 results this week, beating Wall Street estimates on both the top and bottom lines. During Q1, Disney’s revenue totaled $23.51 billion, which was $230 million above analyst estimates, representing 7.7% year-over-year growth. Disney’s Q1 non-GAAP earnings-per-share came in at $0.99/share, beating Wall Street’s consensus estimate by $0.08/share.
Noteworthy News:
Disney beat analyst estimates on both the top and bottom-lines, but the growth was largely attributed to its Parks & Resorts segment. Bob Iger, Disney’s CEO, announced a restructuring plan to reduce costs and make its content segments profitable as well. Iger also mentioned that he plans to bring back Disney’s shareholder dividend in 2023.
Nobias Insights
49% of recent articles published by credible authors focused on Disney shares offer a “neutral” bias. However, 100% of the credible Wall Street analysts who cover DIS believe shares are likely to rise in value. The average price target applied to DIS by these credible analysts is $129.50, which implies upside potential of approximately 19.8% relative to the stock’s current share price of $108.06.
Bullish Take Shanthi Rexaline, a Nobias 4-star rated author, said, “Walt Disney Company DIS shares took off after the entertainment giant reported above-consensus fiscal year 2023 first-quarter earnings.”
Bearish Take Ian Lyndal, a Nobias 4-star rated author, said, “Peltz had previously expressed criticism over Disney's $71 billion acquisition of Fox in 2019 and its lack of succession planning.”
DIS Feb 2023
The Walt Disney Company released its Q1 fiscal 2023 earnings this week, beating Wall Street’s consensus estimates on both the top and bottom lines. Disney posted quarterly revenue of $23.51 billion, which was $230 million above analyst estimates, representing 7.7% year-over-year growth.
On the bottom-line, Disney’ Q1 non-GAAP earnings-per-share came in at $0.99/share, beating Wall Street’s consensus estimate by $0.08 share. This $0.99/share result was down from last year’s $1.06/share result; however, Disney management noted that on a diluted basis its Q1 EPS was $0.70/share, up roughly 11.1% from last year’s $0.63/share diluted figure.
During the company’s Q1 earnings report, Bog Iger, Disney’s newly appointed CEO, said, “After a solid first quarter, we are embarking on a significant transformation, one that will maximize the potential of our world-class creative teams and our unparalleled brands and franchises. We believe the work we are doing to reshape our company around creativity, while reducing expenses, will lead to sustained growth and profitability for our streaming business, better position us to weather future disruption and global economic challenges, and deliver value for our shareholders.”
Disney’s report also highlighted segment operating results, stating:
“Linear Networks revenues for the quarter decreased 5% to $7.3 billion, and operating income decreased 16% to $1.3 billion.”
“Domestic Channels revenues for the quarter decreased 1% to $6.1 billion, and operating income increased 5% to $928 million. The increase in operating income was due to higher results at Cable, while results at Broadcasting were comparable to the prior-year quarter.”
“International Channels revenues for the quarter decreased 21% to $1.2 billion and operating income decreased 64% to $131 million. The decrease in operating income was due to lower advertising revenue, an unfavorable foreign exchange impact and a decrease in affiliate revenue, partially offset by a decrease in programming and production costs.”
“Direct-to-Consumer revenues for the quarter increased 13% to $5.3 billion and operating loss increased $0.5 billion to $1.1 billion. The increase in operating loss was due to a higher loss at Disney+ and a decrease in results at Hulu, partially offset by improved results at ESPN+.”
With regard to its streaming service segment, Disney noted that, “The average monthly revenue per paid subscriber for domestic Disney+ decreased from $6.10 to $5.95 driven by a higher mix of subscribers to multi-product offerings, partially offset by an increase in retail pricing.”
Although it appears that Disney+ is losing pricing power, during Disney’s Q1 analyst conference call, Iger said, “ Our current forecasts indicate Disney+ will hit profitability by the end of fiscal 2024 and achieving that remains our goal.”
Moving away from its content divisions and into its Parks & Resorts segment, Disney noted that, “Disney Parks, Experiences and Products revenues for the quarter increased 21% to $8.7 billion and segment operating income increased 25% to $3.1 billion. Higher operating results for the quarter reflected increases at our domestic parks and experiences and, to a lesser extent, our international parks and resorts.”
Investors have applauded Disney’s double digit Park & Resort growth in spite of struggles from its content segments and during the Q1 conference call, Iger provided Disney bulls with more good news: the expected return of a shareholder dividend.
Iger said, “Now, when it comes to investing in growth and returning capital to shareholders, we will take a balanced and disciplined approach as we did throughout my previous tenure as CEO, when we invested in our core businesses and acquired new ones, bought back stock and paid a dividend to our shareholders.” He continued, “As a result of the impact of the COVID pandemic, we made the decision to suspend the dividend in the spring of 2020. Now that the pandemic impacts to our business are largely behind us, we intend to ask the Board to approve the reinstatement of a dividend by the end of the calendar year.”
Bullish Nobias Credible Analysts Opinions:
Shanthi Rexaline, a Nobias 4-star rated author, highlighted post-earnings reactions from several prominent names on Wall Street regarding Disney shares in an article that she published at Benzinga this week. Rexaline stated, “Walt Disney Company DIS shares took off after the entertainment giant reported above-consensus fiscal year 2023 first-quarter earnings.” Moving onto analyst opinions of the results, she said, “Disney is in inning one under Bob Iger, said Ross Gerber, co-founder and CEO of Gerber Kawasaki Wealth And Investment Management, apparently suggesting there is more to come.”
Rexaline also wrote, “CNBC Mad Money host Jim Cramer thanked Iger for delivering excellent news.If I were Nelson Peltz, I would be thrilled with these developments,” Cramer added.
Lastly, she touched upon an analyst upgrade from Keybanc Capital Markets. She highlighted a recent report by Keybanc analyst, Brandon Nispel, and said, “The analyst noted that the company made marginal changes with respect to its 2023 guidance, with the moving pieces in the near term could be taken negatively.”
“As such,” she continued, “KeyBanc lowered its 2023 estimates but raised its estimates for 2024, citing its increased conviction on sustained momentum in DPEP and the $5.5 billion cost savings underway at DMED[Disney Media and Entertainment Division]. Management commentary and restructuring were in line, the firm said.”
Ultimately, she concluded, “KeyBanc raised the price target for Disney shares by 9% from $119 to $130, attributing the revision to its higher 2024 estimates. The updated price target implies scope for a 16% upside from current levels. The firm has an Overweight rating on the shares.”
Bearish Nobias Credible Analysts Opinions:
Ian Lyndal, a Nobias 4-star rated author, published an article at Proactive Investors this week which specifically covered the recent proxy fight that Jim Cramer mentioned above between Nelson Peltz and the Walt Disney Company.
Lyndal wrote, “Nelson Peltz, the head of Trian Fund Management, announced the end of his proxy fight with The Walt Disney Company on Thursday after the entertainment giant unveiled a major restructuring plan, according to CNBC.” He continued, “The announcement followed Trian's January launch of a proxy fight, pushing for Peltz to gain a seat on Disney's board. At the time, Trian claimed to own 9.4 million shares valued at approximately $900 million.”
Disclosure: Nicholas Ward is long DIS.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Looking for the cause of this proxy fight, Lyndal said, “Peltz had previously expressed criticism over Disney's $71 billion acquisition of Fox in 2019 and its lack of succession planning.” Lyndal also noted that Peltz had recently criticized Disney for "weak corporate governance". “However,” he concluded, “Disney's recent announcement to restructure its business into three divisions, cut $5.5 billion in costs, and lay off 7,000 employees has apparently satisfied Peltz's concerns.”
Overall bias of Nobias Credible Analysts and Bloggers:
49% of recent articles focused on Disney shares have provided a “Neutral” outlook, showing that the credible authors that the Nobias algorithm tracks remain tepid on Disney’s growth prospects.
However, a different story is playing out on Wall Street. 100% of the credible analysts that the Nobias algorithm tracks who have offered an opinion on Disney shares believe that the stock is likely to increase in value.
Currently, Disney trades for $108.06/share. The average price target being applied to DIS by the credible Wall Street analysts that Nobias tracks is $129.50. This implies upside potential of approximately 19.8%.
Disclosure: Nicholas Ward is long DIS. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.