Case Study: Disney (DIS) stock according to high performing analysts
Key Points
Performance
Disney shares fell by 11.21% this week, pushing their year-to-date gains down to 3.39%. This compares poorly to the S&P 500, which is up by 7.84% on a year-to-date basis.
Event & Impact
Disney posted its fiscal 2023 second quarter results this week, beating consensus estimates on the top line, but missing expectations on the bottom line. During Q2, DIS’s revenue totaled $21.82 billion, beating Wall Street’s consensus estimate of $21.79. Disney’s Q2 non-GAAP earnings-per-share came in at $0.93, which was $0.01/share below consensus estimates.
Noteworthy News:
Disney lost roughly 4 million paid streaming subscribers during Q2; however, the company saw its losses attached to the streaming segment narrow during the quarter due to North America price hikes for Disney+. Disney’s parks and resorts posted double digit growth during the quarter; however, the market continues to focus on the media giant’s struggles in the streaming market.
Nobias Insights
61% of recent articles published by credible authors focused on DIS shares offer a “bullish” bias. Three out of the three credible Wall Street analysts who cover DIS believe that shares are likely to rise in value. The average price target being applied to Disney by these credible analysts is $122.33, which implies an upside potential of approximately 33% relative to the stock’s current share price of $91.99.
Bullish Take Angela Harmantas, a Nobias 4-star rated author, said, “Disney's Parks and Experiences segment witnessed a 17% revenue increase, reaching $7.78 billion, driven by the reopening of sites in Hong Kong and Shanghai.”
Bearish Take Vladimir Dimitrov, CFA, a Nobias 4-star rated author, stated, “The recent disappointing results by Paramount Global (PARA) and problems related to Warner Bros. Discovery's (WBD) drop in DTC distribution revenues are pointing to a challenging environment.”
DIS May 2023
The Walt Disney Company (DIS) reported its second quarter earnings report this week, and Vladimir Dimitrov, CFA, who is a Nobias 4-star rated author, updated his expectations for Disney coming into earnings season this week at Seeking Alpha in an article titled, “Disney's Q2 2023 Earnings: Now Is The Time To Deliver”.
Dimitrov began his report by stating, “Although making predictions on noisy quarterly results is a futile exercise, Disney now appears in a very good position to deliver better than expected results for the past 3-month period.” He noted that in 2019, he never would have predicted Disney’s recent underperformance; however, he continued, “Disney's management seems to have realized the grave mistake they have made of doubling down on a very poor strategy of prioritizing quantity of content over quality.”
Bearish Nobias Credible Analysts’ Opinions:
But, Dimitrov added, the Wall Street community was not bullish on DIS shares coming into the company’s Q2 report. "Analysts, on the other hand, have been adjusting their expectations with a total of 17 EPS revisions in the past 90-day period,” Dimitrov wrote.
All 17 of these revisions were negative. Dimitrov said that this bearish sentiment was largely due to the poor performance of Disney’s peers during their recent quarters. “The recent disappointing results by Paramount Global (PARA) and problems related to Warner Bros. Discovery's (WBD) drop in DTC distribution revenues are pointing to a challenging environment,” he said. Yet, Dimitrov points out, these companies don’t have Disney’s new CEO, Bob Iger, at the helm.
“With the new CEO, the company now has an ambitious target of $5.5bn cost-savings. From these, roughly $2.5bn will be related to selling, general, and administrative expenses, with $1bn expected to be realized during this fiscal year,” he wrote.
“In addition to the cost-cutting efforts and the lower losses in the DTC segment,” Dimitrov said, “Disney would also benefit from the current momentum in its Parks, Experiences, and Products segment.”
In concluding his article, Dimitrov wrote, “After years of struggles, Disney finally appears to be in a good spot to turn the business around and capitalize on the supportive macroeconomic environment.”
In terms of the media company’s tough macro environment, Dimitrov added, “investors should remain focused on the long-term issues at the company and take into account the risk of a recession in the coming months.”
Bullish Nobias Credible Analysts Opinions:
Angela Harmantas, a Nobias 4-star rated author, covered Disney’s quarterly report in an article that she published at Proactive Investors this week. She began, “The Walt Disney Company saw its streaming losses narrow in its fiscal 2Q as price increases offset subscriber losses.” This allowed Disney to beat Wall Street’s expectations on the top-line; however, the company’s bottom-line results came in below Wall Street’s expectations.
Harmantas touched upon Disney’s top-line results, stating, “Disney reported group revenues of $21.82 billion, surpassing the $21.79 billion consensus estimates by a narrow margin.” She moved onto the bottom-line, writing, “The company stated that adjusted diluted earnings for the fiscal 2Q 2023, which ended in March, stood at $0.93 per share, down 14% from the same period last year, aligning with Wall Street forecasts.”
Looking at Disney’s streaming results specifically, Harmantas noted that paid Disney+ subscribers fell by 4 million to 157.8 million, “largely due to the loss of televised cricket rights in India, the company said.” However, despite falling subs, Harmantas noted that Disney’s streaming segment “managed to reduce its losses to $659 million, compared to $1.1 billion in the previous quarter”. She said that this was largely due to a 20% price increase for North American users.
Disney touched upon this during its Q2 report, stating, “Domestic Disney+ average monthly revenue per paid subscriber increased from $5.95 to $7.14 due to an increase in average retail pricing.” “Meanwhile,” Harmantas said, “Disney's Parks and Experiences segment witnessed a 17% revenue increase, reaching $7.78 billion, driven by the reopening of sites in Hong Kong and Shanghai.”
During Disney’s second quarter analyst conference call, the company’s CFO, Christine McCarthy, noted that this top-line sales success led to strong profit growth from the Parks segment as well. McCarthy said, “Moving on to Parks, Experiences, and Products, operating income increased by over 20% versus the prior year to $2.2 billion, with increases at both international and domestic parks and experiences partially offset by lower merchandise licensing results at consumer products.”
All in all, this strength from the Parks segment wasn’t enough to spark a post-earnings rally for Disney shares. Disney shares fell by 11.2% this week, pushing their year-to-date gains down to just 3.39%. Disney’s CEO, Iger, was not distraught, however. In the post-earnings conference call, Iger told analysts, “We're also proud of what we continue to deliver for consumers, from movies to television to sports, news and our theme parks. A few recent highlights include Marvel Studios Guardians of the Galaxy Volume 3, which topped the global box office in its opening weekend with $289 million. The first round of the NBA playoffs was the most watched ever across Disney networks, and we've been averaging 5 million viewers throughout the first 22 games, up 15% versus the comparable point in last year's playoffs.”
Also, he highlighted plans at Disney+ to reignite growth, stating, “As a significant step toward creating a growth business, I'm pleased to announce that we will soon begin offering a one-app experience domestically that incorporates our Hulu content via Disney+.” After Disney’s Q1 earnings report, Nobias 4-star rated Wall Street analyst, Peter Supino, downgraded DIS shares.
According to the Fly on the Wall, “Wolfe Research analyst Peter Supino lowered the firm's price target on Disney to $128 from $211 and kept an Outperform rating on the shares after taking over coverage of the media, cable, and telecom sectors. Innovation and competition are accelerating while key segments face saturation, and "controversy sets up stock picking opportunities,"
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.
Supino tells investors in a research note. With more suppliers fighting for the same customers, the analyst sees "unremitting pressure" on subscriber acquisition costs and pricing.” After examining Disney’s earnings results, Supino was also bearish. The Fly on the Wall reported, “Wolfe Research downgraded Disney to Peer Perform from Outperform without a price target.”
Overall bias of Nobias Credible Analysts and Bloggers:
Overall, the average price target being applied to Disney shares by credible analysts is $122.33. Today, DIS shares trade for $91.99. Therefore, that average credible analyst price target represents an upside potential of approximately 33%.
On the whole, the credible authors that the Nobias algorithm tracks agree with this bullish sentiment. 61% of recent articles published by credible authors focused on DIsney have expressed a “bullish” bias.
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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