In a significant move that has caught the attention of investors and industry observers alike, James Gorman, the executive chair of Morgan Stanley (MS) and a newly minted board member of Walt Disney (DIS), recently purchased over $2 million worth of the company's stock on May 8. This substantial insider buy - the first for Disney this year - comes at a time when the entertainment giant is navigating a thorny landscape shaped by evolving consumer preferences and intense competition in the streaming sector.
Gorman's stock pickup follows close on the heels of Disney's May 7 earnings report, which was marred by a revenue miss that led to a stock sell-off, despite the company's notable achievement of turning its streaming business profitable for the first time. This milestone is particularly significant considering the ongoing "streaming wars," with major players like Netflix (NFLX), Amazon (AMZN), and even Apple (AAPL) vying for market share. In fact, a recent study by PwC projects that the global streaming market will reach $75.5 billion by 2027, growing at a CAGR of 7.2% from 2023 to 2027.
Amidst these developments, and its high-profile proxy battle with Nelson Peltz, Disney has remained in the spotlight with investors all year. While the streak of quarterly revenue misses has raised some red flags, Gorman's big insider buy is intriguing, especially given his Wall Street bona fides. Should investors take a cue from this 7-figure vote of confidence? Here's a closer look at Disney stock now.
DIS Stock Bounces Back
The Walt Disney Company (DIS) has been a long-term laggard on the charts, down 40% over just the last three years - but the stock was starting to get up off the mat more recently.
DIS is now up 13.6% in the last 52 weeks, and 14.5% on a YTD basis. That's not too shabby, considering the equity's steep 16.5% pullback from its late-March highs.
Is DIS Stock a Good Value?
In terms of shareholder returns, Disney has had some ups and downs with its dividend payments. After pausing dividends, the company reinstated its semi-annual dividend in 2023, starting with a $0.30 per share payment in January 2024. Recently, Disney announced a 50% increase in its semi-annual dividend to $0.45 per share, payable on July 25. This brings the total annualized dividend to $0.90 per share, for a current dividend yield of about 0.87%.
The entertainment giant has a robust market capitalization of about $188.5 billion, and is currently valued at a forward Price-to-Earnings (P/E) ratio of 21.72. That's a nearly 50% discount to Disney stock's historical average P/E over the last five years. Similarly, DIS trades at a forward Price/Sales of 2.06, a discount from its average P/S of 2.99.
Those bargain valuations were apparently too much for Gorman to overlook, particularly at the peak of the post-earnings selling. On May 8, the former Morgan Stanley CEO bought 20,000 shares of DIS at an average price of $106.03 each, for a total transaction value in excess of $2.1 million. Prior to this purchase, Gorman owned less than 500 shares of Disney.
Notably, the last insider buy on DIS that hit 7-figure territory was made all the way back in 2002, by then-Chair Michael Eisner, when he dropped $9.8 million on over 725K shares.
Inside Q2 Earnings at DIS
Speaking of earnings, Disney's fiscal Q2 2024 report was a mixed bag. The company reported adjusted earnings per share (EPS) of $1.21, which beat analysts' expectations for $1.10. However, its revenue of $22.1 billion fell short of forecasts for $22.08 billion, and marked its fourth consecutive top-line miss.
The miss on revenue overshadowed even a guidance hike from Disney, as the media giant raised its full-year EPS growth forecast to 25%, up from the previous 20%. Analysts, for their part, are targeting 26.6% EPS growth this fiscal year to $4.76.
Disney expects to generate a robust free cash flow of about $8 billion for the fiscal year, nearing pre-pandemic levels.
What's Driving Growth at Disney?
Meanwhile, Disney's latest cinematic release, "Kingdom of the Planet of the Apes," had a spectacular debut, earning $56.5 million in its opening weekend in the U.S. and reaching a global total of $129 million.
Beyond movies, Disney has entered a strategic partnership with Walmart (WMT) to improve digital advertising effectiveness. Announced on the same day as Gorman's stock purchase, this collaboration aims to innovate and capture new growth opportunities in the digital ad space.
Disney is also venturing into the digital and gaming realms through its $1.5 billion collaboration with Epic Games. This partnership will co-create a new games and entertainment universe using Epic's popular Fortnite platform, expanding Disney's reach in the digital and interactive media space.
On the parks and resorts front, Disney secured a $735 million five-year, floating-rate commercial mortgage-backed securities (CMBS) term loan to refinance three major properties: the Walt Disney World Swan, the Walt Disney World Dolphin, and the Walt Disney World Swan Reserve. This deal, brokered by JLL's Hotels and Hospitality Group, with Wells Fargo (WFC), Bank of America (BAC), and Goldman Sachs (GS) as lenders, highlights Disney's commitment to upgrading its iconic resort properties.
Lastly, Disney's global influence is growing with the merger of its Indian TV and streaming media assets with those of Reliance Industries, creating an $8.5 billion entertainment powerhouse. This strategic move positions Disney ahead of its competitors in one of the world's most populous and rapidly growing markets, reinforcing its commitment to global entertainment dominance.
What Do Analysts Expect for DIS Stock?
The investment community is largely bullish on Disney's stock. Out of 27 analysts, 18 suggest a “strong buy,” 4 recommend a “moderate buy,” 4 advise a “hold,” and only 1 votes a “strong sell.” The consensus opinion is a “strong buy,” up from “moderate buy” just a couple months ago. This bullish sentiment is underscored by the mean target price of $126.96, indicating a potential upside of about 22.8%.
So, there you have it. Despite some turbulence, Disney's showing signs of a strong comeback. With insiders and analysts confident, strategic partnerships laying the groundwork for future growth, and a promising financial outlook, Disney might be gearing up for another magical rally. If you've been eyeing DIS, consider joining Mr. Gorman in buying on this latest dip.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
