The Dow Jones Industrial Average ($DOWI) kicked off the year positively, wrapping up the first quarter with a 5.6% gain. Leading the pack was the entertainment giant Walt Disney Company (DIS), boasting an impressive return of 34.9% over the same time frame - the best performance out of all 30 Dow stocks.
Moreover, analysts at Bank of America (BAC) maintained a “Buy” rating on Walt Disney stock in April, raising the price target to $145. BofA focused on Disney's impressive park performance, suggesting that Disney could witness overall operating income growth by a low-to-mid-teens percentage in Q2.
Furthermore, Disney clinched victory in the costliest proxy battle in U.S. history, rejecting activist investor Nelson Peltz's bid for a board seat, and affirming support for Disney-backed directors. This ultimately benefited Disney shareholders. Since Peltz announced his proxy fight in late November, shares of Disney have gained nearly 26% as of the market close on Apr. 10.
Given these developments, should investors consider the stock? Let's find out.
About Walt Disney Stock
The Walt Disney Company (DIS), based in Burbank, California, boasts global brand recognition and a formidable competitive advantage. Leveraging its unique storytelling strength, Disney has diversified into various sectors. Its extensive content library and expanding film portfolio sparked its entry into the competitive online streaming arena, challenging established players like Netflix (NFLX) and Amazon (AMZN) Prime Video. Its market cap currently stands at $214.9 billion.
While Disney stock did not record losses last year, it underperformed both the broader Dow Jones and the S&P 500 Index ($SPX). Longer term, the entertainment giant’s performance has lagged the Dow Jones over the past decade, too. However, over the past 52 weeks, Disney stock has gained nearly 17%, while the Dow is up 14.4% over the same period.
The company reinstated its dividend last year after a three-year suspension, paying a dividend of $0.30 per share in January. In February, it increased the semi-annual dividend payment by 50% to $0.45. This translates to a yield of 0.77%.
The stock currently trades at 2.43 times sales – cheaper than its smaller rival Endeavor Group’s (EDR) 3.09x. The ratio is also much lower than NFLX’s 7.93x. Moreover, its forward price/earnings ratio of 25.17x is lower than NFLX’s 36.94x and its own 5-year average of 42.68x.
Walt Disney’s Earnings Beat Expectations
In its fiscal Q1 earnings report released on Feb. 7, Walt Disney's revenue increased marginally year over year to $23.6 billion, missing the consensus estimate by 0.9%. However, its adjusted EPS of $1.22 beat analysts' expectations by 25.8%, boosted by growing revenue from its theme parks business and cost cuts.
Its Q1 experiences segment revenue, which includes parks and cruise ships, grew 7% annually to $9.1 billion, while the segment's operating income rose 8% to $3.1 billion. Plus, CEO Iger's aggressive cost-saving initiatives are proving remarkably successful, with the company poised to exceed or at least meet the targeted $7.5 billion in cost reductions by September, as per the CEO's announcement.
For fiscal 2024, Disney projects at least a 20% rise in EPS to $4.60, while free cash flow generation is expected to total roughly $8 billion. Analysts tracking Walt Disney expect the company to report a profit of $4.66 per share in fiscal 2024, up 23.9% year-over-year, with continued growth to $5.57 per share in fiscal 2025.
What Do Analysts Expect for Walt Disney Stock?
DIS has a consensus “Moderate Buy” rating overall. Out of the 24 analysts covering the stock, 15 recommend a “Strong Buy,” four suggest a “Moderate Buy,” four rate it a “Hold,” and one says “Strong Sell.”
The average analyst price target for Walt Disney is $124.33, indicating a modest potential upside of 6.1%. However, the Street-high price target of $145 - shared by analysts at Needham & Company and Bank of America Securities - suggests that the stock could rally as much as 23.7% from current levels.
