October 21, 2023 $82.65
Business Overview:
Disney’s business encompasses various entertainment and media operations, making it a major player in the global entertainment industry.
- Media Networks: Includes cable and broadcast TV networks like ABC, ESPN, and Disney Channels.
- Parks, Experiences, and Products: Encompasses Disney theme parks, resorts, and cruise lines, as well as Adventures by Disney and merchandising.
- Studio Entertainment: Responsible for creating, producing, and distributing films, including properties like Disney, Pixar, Marvel, Lucasfilm (Star Wars), and 20th Century Studios.
- Direct-to-Consumer & International (DTCI): Includes Disney’s streaming services, including Disney+, Hulu, and ESPN+, and international television operations.
- Content Distribution: Distributing content through various platforms, including online, mobile, video on demand, pay, and syndicated television.
- Consumer Products: Disney monetizes its intellectual properties (IPs) through licensing, publishing, video games, and retail sales, focusing on properties like Marvel, Pixar, and Star Wars.
- Acquisitions: Disney has made significant acquisitions, including Pixar (2006), Marvel (2009), Lucasfilm (2012), and 21st Century Fox (2019), expanding its content offerings.
Maverick Guidance:
- Short-term stock recommendation: Has been STRONG SELL, but soon to reverse
- Long-term stock recommendation: DIS has fallen into the ACCUMULATION ZONE
- Weakening financial strength must be watched but is not critical.
- Long-term underperforming average total return, but the future looks more promising.
- Earnings are unpredictable but expected to be solid when next reported.
- The next report (Q4) is due Nov. 8 with a consensus EPS $0.74 vs the prior year’s $0.30.
- Descending triple-bottom break-down on 03Jul23
Consideration for Maverick Portfolio:
- Appropriate for Mavericks with a risk profile score of 22-29 who seek to balance caution and ambition, aiming for reasonable growth while managing risk. The Maverick MODERATELY CONSERVATIVE portfolio is designed to maintain a stable yet potentially rewarding financial strategy by including a mix of conservative and moderately aggressive Dow 30 stocks.
- DIS is inappropriate for Mavericks with a risk profile score of below 22, who aim for stability with a Maverick CAUTIOUS GROWTH portfolio.
- Depending on a positive earnings report on November 8, DIS might also be recommended for Mavericks willing to take on higher risk for the potential of higher returns in a MODERATE GROWTH portfolio.
Internal Strength/Weakness
Strengths:
- Strong Brand Recognition: Disney is globally recognized with a rich history and beloved characters, fostering a loyal and multi-generational fan base. Their marketing approach, including experiential marketing, has been highly effective.
- Diversified Business Portfolio: Disney’s diverse range of business segments, including media networks, parks and resorts, studio entertainment, consumer products, and interactive media, provides risk mitigation and market opportunity capitalization.
- Successful Theme Park Operations: Disney’s theme parks are among the world’s most popular and profitable, drawing millions of visitors annually. The company’s theme park operations consistently achieve success, offering immersive and engaging experiences for guests.
- Strong Intellectual Property Portfolio: Disney possesses iconic and valuable brands, such as Marvel, Star Wars, Pixar, and National Geographic, providing a significant competitive edge and creating popular and lucrative franchises.
- Innovation and Creativity: Disney is known for its innovation and creativity, staying ahead of competitors and remaining relevant by adapting to changing consumer preferences and technological advancements in various business segments.
Weaknesses:
- Dependence on Key Franchises: Disney’s financial success relies heavily on key franchises like Star Wars, Marvel, and Pixar, making it vulnerable to their performance.
- Vulnerability to External Factors: Disney is susceptible to external factors like economic changes, geopolitical events, and natural disasters, impacting its financial performance, as seen during the COVID-19 pandemic.
- Heavy Reliance on Licensing and Merchandising: While profitable, Disney’s reliance on licensing and merchandising carries the risk of overexposure or over-licensing of its brands.
- Competitive Pressure: Disney faces substantial competition from other media and entertainment companies, with new players potentially threatening its market share and financial performance.
External Opportunities/Threats https://thestrategystory.com/blog/coca-cola-swot-analysis/
Opportunities:
- Expand Streaming Services: Disney can grow its streaming services through new content and partnerships.
- Develop New Franchises: Disney can create innovative intellectual property based on its successful track record.
- Expand International Presence: Leveraging its strong global brand, Disney can expand in new and emerging markets.
- Leverage Emerging Technologies: Use VR, AR, and AI technologies to engage consumer experiences.
- Capitalize on Business Synergies: Disney can integrate its business segments for mutual benefit, such as incorporating characters into various media.
Threats:
- Competition from Other Media Companies: Facing significant competition, Disney’s market share and performance are at risk.
- Economic Downturns: Fluctuating global economies can impact consumer spending and Disney’s financial performance.
- Changing Consumer Preferences: Adapting to shifting trends is crucial for Disney to remain relevant and competitive.
- Natural Disasters and Unforeseen Events: Events like pandemics and natural disasters can disrupt operations and supply chains, affecting Disney’s financial performance.
Market Guidance:
- Point & Figure Pattern: (monthly chart) 03Jul23 Descending triple-bottom break-down
- Summary from TipRanks: 8 Buy 5 Hold 1 Sell based on 24 analysts giving stock ratings to DIS in the past 3 months
- Based on 24 Wall Street analysts offering 12-month price targets for Walt Disney in the last 3 months. The average price target is $106.43, with a high forecast of $128.00 and a low forecast of $71.00. The average price target represents a +77% change from the last price of $82.65.
- Consensus Analyst Ratings— MarketBeat = Moderate Buy, TipRanks = Moderate Buy
- Dividend Yield: No upcoming dividends.
- Short-term Technical Analysis: Investing.com = Strong Sell, TipRanks = Sell. Note that the long-term Technical Indicators are Neutral, whereas the Moving Averages are Bearish.
Value Line Guidance: (all from VL)
Company Financial Strength Rating: A (recent drop from A+)
Share Price Safety, Market Timing, Technical Rank: 1=best. 5=worst
Share Price Safety: 2 of 5 Lowered July 2023
Market Timing: 4 of 5 Unchanged for over two years
Technical Rank: 5 of 5 Lowered 21Oct23
Stock’s Price Stability: 80/100 VL Quarterly Report
Price Growth Persistence: 45/100 VL Quarterly Report
Earnings Predictability: 10/100 VL Quarterly Report
10-year Average Annual Total Return: +2.79% (through to 20Oct23) [https://www.averageannualreturn.com/dis/?l=1 (Dow 30 4th quartile)]
EPS 2022: $1.75 VL Quarterly Report
EPS 2023: e$1.25 VL Quarterly Report
EPS 2024: e$2.60 VL Quarterly Report
Average Annual PE: 19 VL Quarterly Report
PEG Ratio: 3.73 FinViz
Beta 1.31 FinViz
Average Annual Sales Growth in past 5 years: 3.00% VL Quarterly Report
Average Annual Sales Growth next 5 years: 6.00% VL Quarterly Report
Average Annual Earnings Growth in past 5 years: -40% VL Quarterly Report
Average Annual Earnings Growth next 5 years: +65% VL Quarterly Report
Average Annual Dividend Growth in past 5 years: no dividend VL Quarterly Report
Average Annual Dividend Growth next 5 years: likely dividend within 3 years VL Quarterly Report
Financial Performance
- Disney made $82.7 bn in revenue and $12.1 bn in operating income in FY22.
- 10-year Average Annual Total Return: +2.79% (through Oct 11, 2023) (Dow 30 4th quartile).
Review of Revenue, Cash Flow, Earnings Quarterly Operations:
June 2023 Quarter:
- Disney faced challenges in the fiscal third quarter, with a loss mainly from its Media and Entertainment Distribution segment, impacting full-year profits.
- Earnings per share likely fell by 29% for the fiscal year, but revenues increased by approximately 8%.
- CEO Bob Iger’s efforts to restructure the company, reduce costs, and restore creativity are in progress.
- Disney aims to reduce operating costs by $5.5 billion and expects its Direct-to-Consumer business to turn profitable by the end of fiscal 2024.
- Earnings are expected to double this year, with mid-single-digit revenue growth. The stock price faced recent pressure, and activist investor Nelson Peltz increased his stake in the company, potentially seeking a board seat.
March 2023 Quarter:
- Disney’s stock faced pressure after reporting earnings and lackluster guidance for its streaming segment.
- On an adjusted basis, Disney had a decent performance in the fiscal second quarter, with doubled profits from continuing operations and a +13% revenue increase.
- However, excluding certain items, the bottom line decreased by nearly -14% year-over-year.
- Disney raised prices for its streaming services but also reported declining Disney+ subscribers and global subscription levels.
- Management’s efforts aim to counter challenges in the competitive media landscape through brand and content investments, bundling subscriptions, cost-cutting, and potential divestitures.
December 2022 Quarter:
- Disney underwent a strategic restructuring program focusing on streaming segments, a reorganization of operations, and cost-cutting, including layoffs.
- The fiscal first quarter saw an 11% increase in share net and an 8% revenue increase.
- Restructuring and pricing initiatives are expected to strengthen results and counter market challenges.
- Revenue is projected to grow at a 5%-10% rate in the coming two years, with earnings per share anticipated to rise by 10%-15% in fiscal 2023 and an additional 30% in the following year.
- Disney’s stock price experienced volatility due to leadership changes and activist investor involvement but may present an entry point for patient investors with long-term prospects.
Operations 3-to-5-year Outlook (Revenue, Cash Flow, Earnings) (all from VL)
- Revenue Growth Potential: +6.0%
- Cash Flow Growth Potential: +22.0%
- Earnings Growth Potential: +65.0%
- The 3-to-5-year outlook indicates higher revenue and a turnaround in cash flow and earnings with a prospect of future dividends.
- The company’s long-run outlook is cautiously optimistic, focusing on Bob Igor’s restructuring program and the potential to sell off non-core pieces..
FinViz Snapshot: https://finviz.com/screener.ashx?v=341&t=DIS&p=m
10-Year Historical Price Chart:
https://tvc-invdn-com.investing.com/data/tvc_286e5623aa165272900cb416c35cad5d.png
Point & Figure Chart: (from StockCharts.com)
https://stockcharts.com/freecharts/pnf.php?c=DIS,PWTAMANRNO[PA][D][F1!3!!!2!20
