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Disney (DIS) Gains 8.5% YTD: How Should You Play the Stock in 2H?
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Disney (DIS - Free Report) has demonstrated resilience, delivering an 8.5% return year to date against the broader Zacks Consumer Discretionary sector’s decline of 2.2%. As investors turn their attention to the latter half of the year, the entertainment giant's stock presents both opportunities and challenges that warrant careful consideration.
Disney remains a prominent name in the investment world, long revered as a blue-chip stock and a staple in many portfolios. Disney's strength lies in its globally recognized brand and diverse intellectual properties spanning movies, TV shows, theme parks and merchandise.
However, recent years have brought significant challenges, including disruptions in traditional media, pandemic impacts on theme parks and evolving consumer behaviors. These headwinds have prompted investors to reevaluate Disney's appeal, questioning whether the Magic Kingdom can maintain its former allure in an increasingly competitive and rapidly changing entertainment landscape.
Year-to-Date Performance
Image Source: Zacks Investment Research
Disney's Resurgence: Theme Parks, Cruise Lines and Sports Betting
Disney's theme park division is rebounding strongly after pandemic-related setbacks. With parks now fully operational, 2024 is poised for a visitor surge driven by pent-up demand and new attractions worldwide. The company anticipates substantial operating income growth in its Experiences segment.
Walt Disney World Resort is benefiting from increased guest spending and higher ticket prices. Similarly, Disney Cruise Line is seeing growth due to elevated ticket prices. Hong Kong Disneyland Resort is experiencing improved guest spending across tickets, food, beverages and merchandise.
The company's strategic investments in new rides and immersive experiences across its global parks are likely to enhance visitor appeal and spending further. As we move into the second half of 2024, investors should pay close attention to key metrics such as park attendance, per-capita spending and any announcements regarding expansion plans, particularly in international markets.
Additionally, Disney's 85% stake in sports betting company BamTech presents a promising opportunity. As legal sports gambling expands across the United States, BamTech's specialized focus in this sector could potentially unlock significant value for Disney in the evolving entertainment landscape.
Disney's Streaming Odyssey: Challenges and Opportunities Ahead
Disney remains committed to its streaming strategy amid a rapidly evolving digital landscape. With a restructured approach and renewed focus on content, Disney+ continues to expand its library, leveraging iconic franchises like Star Wars and Marvel to bolster its subscriber base.
The platform has shown promising growth, with paid subscribers increasing from 111.3 million in December 2023 to 117.6 million by Mar 31, 2024. However, Disney anticipates a plateau in core subscriber growth for Disney+ in the fiscal third quarter, with improvements expected in the fourth quarter. The company remains optimistic, projecting profitability for its combined streaming businesses by the fourth quarter of fiscal 2024.
The initial surge in Disney+ subscriptions has given way to a more challenging phase, marked by intensified competition and subscriber fatigue. Currently, Netflix (NFLX - Free Report) leads with a 24% market share, followed by Amazon (AMZN - Free Report) -owned Amazon Prime Video with 23%, Disney+ with 18% and Paramount Global (PARA - Free Report) -owned Paramount+ with 8%, according to a report by CULT MTL.
Disney's legendary film studio has also experienced a mix of successes and setbacks. While blockbusters like Guardians of the Galaxy: Vol 3, Inside Out 2 and Kingdom of the Planet of the Apes have performed well, other releases such as The Marvels, Wish, Ant-Man and the Wasp: Quantumania and Elemental have fallen short of expectations.
The financial impact of these shifts is evident in Disney's second-quarter fiscal 2024 results, where Content Sales/Licensing and Other operations reported a loss of $18 million, contrasting with an $83 million operating income in the previous year.
Moving forward, Disney's efforts to optimize content costs and refine pricing strategies will be crucial. The success of these initiatives, along with improvements in average revenue per user (ARPU) and streaming margins, could significantly influence investor sentiment in the coming months.
Conclusion
For those considering how to play Disney stock in the second half of 2024, a nuanced approach may be warranted. Disney remains a diversified media and entertainment powerhouse with a strong brand and valuable intellectual property. Its theme parks and resorts continue to be a significant revenue driver, and the potential for growth in emerging markets of Asia remains promising.
The Zacks Consensus Estimate for fiscal 2024 revenues is currently pegged at $91.15 billion, indicating 2.5% year-over-year growth. The consensus mark for fiscal 2024 earnings has moved north by 1.7% to $4.75 per share over the past 60 days, indicating 26.3% growth from the year-ago period.
Image Source: Zacks Investment Research
However, the accelerating trend of cord-cutting continues to put pressure on this segment, potentially offsetting gains in other areas.
Disney is trading at a premium with a forward 12-month P/E of 18.52X compared with the Zacks Media Conglomerates industry’s 17.23X, reflecting a stretched valuation.
DIS’s P/E F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
The company’s debt balance of $39.51 billion compares unfavorably with cash, cash equivalents and its current marketable investment securities balance of $6.635 billion.
Investors will be keenly watching Disney's strategies to mitigate these headwinds, which may include further cost-cutting measures or strategic realignments of its television assets.
Risk-averse investors or those with a shorter investment horizon may want to exercise caution and wait for a better entry point, given the uncertainties surrounding the company's growth prospects and the competitive pressures it faces despite the enduring power of the Disney brand.
Image: Bigstock
Disney (DIS) Gains 8.5% YTD: How Should You Play the Stock in 2H?
Disney (DIS - Free Report) has demonstrated resilience, delivering an 8.5% return year to date against the broader Zacks Consumer Discretionary sector’s decline of 2.2%. As investors turn their attention to the latter half of the year, the entertainment giant's stock presents both opportunities and challenges that warrant careful consideration.
Disney remains a prominent name in the investment world, long revered as a blue-chip stock and a staple in many portfolios. Disney's strength lies in its globally recognized brand and diverse intellectual properties spanning movies, TV shows, theme parks and merchandise.
However, recent years have brought significant challenges, including disruptions in traditional media, pandemic impacts on theme parks and evolving consumer behaviors. These headwinds have prompted investors to reevaluate Disney's appeal, questioning whether the Magic Kingdom can maintain its former allure in an increasingly competitive and rapidly changing entertainment landscape.
Year-to-Date Performance
Image Source: Zacks Investment Research
Disney's Resurgence: Theme Parks, Cruise Lines and Sports Betting
Disney's theme park division is rebounding strongly after pandemic-related setbacks. With parks now fully operational, 2024 is poised for a visitor surge driven by pent-up demand and new attractions worldwide. The company anticipates substantial operating income growth in its Experiences segment.
Walt Disney World Resort is benefiting from increased guest spending and higher ticket prices. Similarly, Disney Cruise Line is seeing growth due to elevated ticket prices. Hong Kong Disneyland Resort is experiencing improved guest spending across tickets, food, beverages and merchandise.
The company's strategic investments in new rides and immersive experiences across its global parks are likely to enhance visitor appeal and spending further. As we move into the second half of 2024, investors should pay close attention to key metrics such as park attendance, per-capita spending and any announcements regarding expansion plans, particularly in international markets.
Additionally, Disney's 85% stake in sports betting company BamTech presents a promising opportunity. As legal sports gambling expands across the United States, BamTech's specialized focus in this sector could potentially unlock significant value for Disney in the evolving entertainment landscape.
Disney's Streaming Odyssey: Challenges and Opportunities Ahead
Disney remains committed to its streaming strategy amid a rapidly evolving digital landscape. With a restructured approach and renewed focus on content, Disney+ continues to expand its library, leveraging iconic franchises like Star Wars and Marvel to bolster its subscriber base.
The platform has shown promising growth, with paid subscribers increasing from 111.3 million in December 2023 to 117.6 million by Mar 31, 2024. However, Disney anticipates a plateau in core subscriber growth for Disney+ in the fiscal third quarter, with improvements expected in the fourth quarter. The company remains optimistic, projecting profitability for its combined streaming businesses by the fourth quarter of fiscal 2024.
The initial surge in Disney+ subscriptions has given way to a more challenging phase, marked by intensified competition and subscriber fatigue. Currently, Netflix (NFLX - Free Report) leads with a 24% market share, followed by Amazon (AMZN - Free Report) -owned Amazon Prime Video with 23%, Disney+ with 18% and Paramount Global (PARA - Free Report) -owned Paramount+ with 8%, according to a report by CULT MTL.
Disney's legendary film studio has also experienced a mix of successes and setbacks. While blockbusters like Guardians of the Galaxy: Vol 3, Inside Out 2 and Kingdom of the Planet of the Apes have performed well, other releases such as The Marvels, Wish, Ant-Man and the Wasp: Quantumania and Elemental have fallen short of expectations.
The financial impact of these shifts is evident in Disney's second-quarter fiscal 2024 results, where Content Sales/Licensing and Other operations reported a loss of $18 million, contrasting with an $83 million operating income in the previous year.
Moving forward, Disney's efforts to optimize content costs and refine pricing strategies will be crucial. The success of these initiatives, along with improvements in average revenue per user (ARPU) and streaming margins, could significantly influence investor sentiment in the coming months.
Conclusion
For those considering how to play Disney stock in the second half of 2024, a nuanced approach may be warranted. Disney remains a diversified media and entertainment powerhouse with a strong brand and valuable intellectual property. Its theme parks and resorts continue to be a significant revenue driver, and the potential for growth in emerging markets of Asia remains promising.
The Zacks Consensus Estimate for fiscal 2024 revenues is currently pegged at $91.15 billion, indicating 2.5% year-over-year growth. The consensus mark for fiscal 2024 earnings has moved north by 1.7% to $4.75 per share over the past 60 days, indicating 26.3% growth from the year-ago period.
Image Source: Zacks Investment Research
However, the accelerating trend of cord-cutting continues to put pressure on this segment, potentially offsetting gains in other areas.
Disney is trading at a premium with a forward 12-month P/E of 18.52X compared with the Zacks Media Conglomerates industry’s 17.23X, reflecting a stretched valuation.
DIS’s P/E F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
The company’s debt balance of $39.51 billion compares unfavorably with cash, cash equivalents and its current marketable investment securities balance of $6.635 billion.
Investors will be keenly watching Disney's strategies to mitigate these headwinds, which may include further cost-cutting measures or strategic realignments of its television assets.
Risk-averse investors or those with a shorter investment horizon may want to exercise caution and wait for a better entry point, given the uncertainties surrounding the company's growth prospects and the competitive pressures it faces despite the enduring power of the Disney brand.
Disney currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.