The Walt Disney Company (DIS) is among the most recognizable brands globally. Valued at a market cap of $172.82 billion, Disney has trailed the broader markets significantly in the past decade. For instance, while the S&P 500 Index ($SPX) has returned 202%, Disney stock is up less than 50% since November 2013.
However, historical returns don’t matter much to current and future investors. So, let’s see if beaten-down Disney stock can regain its momentum as we head into 2024.
How Did Disney Perform in Q4?
The Walt Disney Company operates as a global entertainment behemoth. It owns several theme parks and is also engaged in the production of movies and television-based content. In recent years, Disney has further diversified its revenue base by entering the online streaming segment.
In fiscal Q4 of 2023 (ended in September), Disney increased revenue by 5% year-over-year to $21.2 billion. Strength in streaming, theme parks, and cruise lines helped to offset weakness in movies and at Disney World in Florida.
Disney’s focus on cost-cutting allowed it to report adjusted earnings of $0.82 per share, well above estimates of $0.68 per share. Each of the three primary business lines for Disney reported an uptick in operating income in the September quarter.
Disney’s Streaming Business Will Soon Deliver Profits
While Disney’s streaming business remains unprofitable, its operating losses narrowed by 74% in Q4. Disney emphasized its operating losses for Disney+ narrowed to $400 million in Q4, down sharply from $1.4 billion in the year-ago period. Its goal of lowering costs also enabled the company to report its highest free cash flow in the last five years.
Prior to the launch of Disney+ in 2019, the entertainment giant used to consistently generate over $5 billion in free cash flow each year. Its free cash flow fell from $3.6 billion in fiscal 2020 to just $1.06 billion in fiscal 2022 before improving to $4.89 billion in 2023.
Moreover, Disney added 7 million subscribers to its streaming business, primarily driven by growth in international markets. It also managed to grow average revenue per user in domestic and international geographies due to higher ad sales. Disney is armed with a wide portfolio of intellectual properties, given its movies have been extremely popular globally, which should help continue to increase its subscriber base over time.
The House of Mouse aims to lower its cost base further and expects to reduce expenses by $7.5 billion in fiscal 2024. It also expects the streaming segment to turn a profit within the next 12 months by slashing marketing and distribution costs.
What Is the Target Price for DIS?
Analysts tracking Disney stock expect revenue in fiscal 2024 to grow by 4.3% to $85 billion. Comparatively, its adjusted earnings might expand by 19.4% to $4.12 per share. So, priced at 22.9x forward earnings, DIS is not too expensive.
Out of the 25 analysts covering Disney stock, 16 recommend “strong buy,” two recommend “moderate buy,” six recommend “hold,” and one recommends “strong sell.” The average target price for Disney shares is $106.70, indicating an upside potential of more than 12% over the next year.
