The last time I analyzed The Walt Disney Company (NYSE:DIS) was in July 2023, when I discussed the need for a catalyst to reverse the stock’s long-term downtrend.
Since the start of this year, DIS shares have significantly underperformed the broader market, but have remained stagnant over the past month during the S&P 500 Index correction.
Has Disney finally found the catalyst it needs for a turnaround? Let’s explore.
The Recent Financial Performance
In its fiscal 3Q23 results, Disney exceeded EPS estimates but fell short of revenue expectations by $180 million. The company implemented a corporate restructuring, including layoffs and expense cuts, as well as reorganized its management structure.
The fiscal 3Q revenue reached $22.3 billion, with a 4% increase from the previous year driven by the Parks, Experiences, and Products division. The Media and Entertainment Distribution division experienced a 1% revenue decline.
Disney’s direct-to-consumer business reported an operating loss of $512 million, narrowing from previous losses, thanks to restructuring efforts. However, Disney+ lost 12 million net subscribers in fiscal 3Q, resulting in a decline in total subscribers across all streaming services.
To improve profitability, Disney announced price increases for its direct-to-consumer services and plans for a password-sharing crackdown in 2024.
Disney also faced challenges due to strikes by the Writers Guild of America and SAG-AFTRA, which affected content production and promotion.
Overall, these factors indicate that Disney still has unresolved issues, making it difficult to consider it as a promising investment.
Valuation & Expectations
Comparing Disney’s valuation with major competitors such as Comcast Corporation (CMCSA), Netflix Inc. (NFLX), AT&T Inc. (T), Sony Group Corporation (OTCPK:SNEJF), and Amazon.com Inc. (AMZN), it appears that Disney is relatively undervalued. However, its EPS forecast is declining compared to Netflix, which is not favorable for Disney’s future growth.
In terms of intrinsic value, assuming a 10-year growth rate based on current implied growth, Disney’s shares appear to be slightly overvalued.
Based on the analysis, it is apparent that there have been no significant changes to favor a rapid recovery of Disney’s stock. Disney still requires a catalyst to regain a promising status, making it advisable to avoid investing in Disney until such a catalyst emerges.