Walt Disney Co. (DIS) will report quarterly financial numbers on August 10th — and no one expects much when the quarterly financial numbers are released, suggests Steve Mauzy, editor of Personal Wealth Advisor.
But that’s a good thing for us. We are investors in search of a bargain and Disney is a bargain. We all recognize the Disney name, from its theme parks or its media or entertainment segment.
Disney’s media and entertainment segment generated 75% of the company’s $67 billion in annual revenue last year. It generated 90% of the operating earnings. The segment includes the long-standing Walt Disney studios, which we all know. Twentieth Century Fox studios, Marvel, Lucasfilm, and Pixar are other big-screen holdings.
On the small screen, it owns the ABC broadcast network. It owns 80% of ESPN and all its iterations. It owns the Disney Channel and National Geographic. It owns 50% of A&E TV Star. It owns 21% of Vice. Unknown to many television viewers, Disney also owns the Fox Network.
And as the famous pitchman Ron Popeil would say, “But wait, there’s more!” Disney is a leader in streaming services with its Disney+, ESPN+, Hotstar, and Hulu properties.
Streaming, a darling of Wall Street only a few months ago, has fallen from favor. Netflix (NFLX), the poster child of the industry, stunned investors a few weeks ago when it reported a loss of 200,000 subscribers globally.
Netflix’s surprise drop in subscribers cooled investors on streaming providers. Be sure to avoid tossing out the baby with the bathwater. Where Netflix struggles, Disney excels.
Disney+ added 7.8 million subscribers globally. Most of the growth was concentrated outside of the United States, with 2.1 million in international markets that exclude Hotstar and 4.2 million in Hotstar markets.
Even though domestic growth slowed in the quarter, it remains impressive. Disney added 5.6 million subscribers in the first half of the fiscal year. That’s well ahead of the total new subscribers for all of 2021.
Most everything is recovering for Disney, except the share price. The stock is value priced today; the forward enterprise value/EBITDA multiple of 14 is below the peer average. The shares have historically traded at a 13% premium. If the premium materializes, that puts the price target at $170.
Disney is deserving of the premium. The company is expected to grow revenue at an 11% average annual rate over the next few years. EPS should tag along at a high-single-digit rate. Better yet, the share price could start trending higher to reclaim that premium as soon as next week.
The scuttlebutt on the street is that management may have been sandbagging — going extra conservative — at its last meeting with analysts. There is no more potent propellant for lifting a share price than an earnings beat coupled with improved forward guidance. Buy The Walt Disney Co. shares up to $115.