Analyzing Walt Disney (DIS) April Forecast - Buy or Hold Position?

The Walt Disney Company (DIS) has been making headlines with its impressive fourth-quarter earnings and robust fiscal 2024 guidance. Expectations that the company’s streaming business will become profitable by the end of the year have propelled its share price by 29.7% year-to-date.

In this piece, I have discussed why it could be prudent to wait for a better entry point in the stock.

Following its first-quarter earnings, DIS announced it was on pace to meet or exceed its goal of cutting costs by at least $7.5 billion. The company has guided its fiscal 2024 EPS to be $4.60, which would be at least 20% higher than the previous year. It expects to generate a free cash flow of $8 billion in fiscal 2024. During the first quarter, DIS reported record Experiences’ revenue, operating income, and operating margin.

DIS made a strategic move by investing $1.5 billion for a stake in Epic Games, the company behind the popular video game Fortnite. This significant investment marks DIS’ entry into the highly lucrative gaming market. The company plans to collaborate with the Fortnite gaming studio on new games and an entertainment universe, signaling its commitment to diversification and potential for future growth.

Also, DIS announced that it would launch its direct-to-customer ESPN streaming service in 2025. This announcement follows DIS’s partnership with Fox and Warner Bros to launch their joint sports streaming service later this year, bringing together content from these companies’ combined assets. Meanwhile, CEO Bob Iger successfully thwarted pressure from activist investors who wanted to reshuffle the board and influence succession planning.

Bank of America has a “Buy” rating on the stock and raised its price target to $145 from $130 per share. Analyst Jessica Reif Ehrlich said, “Bob Iger now appears to be in command and control and on a growth offensive. Park performance remains robust, and we project operating income to grow in the low-mid teens in F2Q.”

Here’s what could influence DIS’ performance in the upcoming months:

Robust Financials

For the fiscal first quarter ended December 30, 2023, DIS’ revenues rose marginally year-over-year to $23.55 billion. Its net income attributable to DIS increased 49.4% over the prior-year quarter to $1.91 billion. The company’s cash provided by operations came in at $2.19 billion, compared to cash used in operations of $974 million in the prior-year quarter. Also, its EPS came in at $1.04, representing an increase of 48.6% year-over-year.

Favorable Analyst Estimates

Analysts expect DIS’ EPS and revenue for fiscal 2024 to increase 24.6% and 3.3% year-over-year to $4.69 and $91.83 billion, respectively. Its EPS and revenue for fiscal 2025 are expected to increase 17.4% and 5.3% year-over-year to $5.50 and $96.71 billion, respectively.

Similarly, analysts expect DIS’ EPS and revenue for the quarter ended March 31, 2024, to increase 16.9% and 1.6% year-over-year to $1.09 and $22.16 billion, respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, DIS’ 24.99x is 88.7% higher than the 13.24x industry average. Its 2.83x forward EV/Sales is 52.7% higher than the 1.86x industry average. Likewise, its 14.51x forward EV/EBITDA is 89.6% higher than the 7.65x industry average.

Mixed Profitability

In terms of the trailing-12-month EBIT margin, DIS’ 11.57% is 37.4% higher than the 8.42% industry average. Likewise, its 5.72% trailing-12-month Capex / Sales is 50.3% higher than the industry average of 3.81%. Furthermore, its 3.03% trailing-12-month Return on Common Equity is 4.9% higher than the industry average of 2.89%.

On the other hand, its 34.33% trailing-12-month gross profit margin is 30.7% lower than the 49.54% industry average. Likewise, its 0.44x trailing-12-month asset turnover ratio is 7.4% lower than the 0.48x.

POWR Ratings Reflect Uncertainty

DIS has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DIS has a C grade for Stability, consistent with its 1.41 beta.

It has an A grade for Sentiment, in sync with its favorable analyst estimates. Its stretched valuation justifies its D grade for Value.

DIS is ranked #8 out of 11 stocks in the Entertainment – Media Producers industry. Click here to access DIS’ Growth, Momentum, and Quality ratings.

Bottom Line

DIS’ growth prospects look promising due to its cost cutting measures, entry into the video games through the investment in Epic Games, and growing revenue from its parks and experiences business. The company also expects its streaming business to start delivering profits driven by price increases, programs such as Taylor Swift’s “The Eras Tour (Taylor’s Version),” and crackdown on password sharing.

However, Linear Networks revenue is expected to continue declining as the once-popular cable television struggles to retain viewers. Moreover, its recent box office releases have failed to make a mark as content sales/licensing and other revenues continue to tumble.

Despite the favorable analyst estimates, the stock currently trades at an expensive valuation. So, given its mixed stability, it could be wise to wait for a better entry point in the stock.

How Does The Walt Disney Company (DIS) Stack Up Against Its Peers?

DIS has an overall POWR Rating of C, equating to a Neutral rating. You may check out these B-rated stocks within the Entertainment – Media Producers industry: Vivendi SE (VIVHY), News Corporation (NWSA), and Sony Group Corporation (SONY). For exploring more Buy-rated Entertainment – Media Producers stocks, click here.

What To Do Next?

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DIS shares were unchanged in premarket trading Friday. Year-to-date, DIS has gained 29.68%, versus a 8.28% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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