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Is Disney Stock a Buy, Sell or Hold at a P/S Multiple of 1.77X?
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As we approach the end of 2024, investors are closely scrutinizing Disney (DIS - Free Report) and weighing their options. With its stock trading at a 2-year forward price-to-sales (P/S) multiple of 1.77, compared to the Zacks Media Conglomerates industry average of 1.07X, many are wondering whether Disney represents a buying opportunity or is a stock to sell or hold.
Disney's premium valuation relative to its peers reflects the market's continued faith in the company's brand power and diverse revenue streams. However, this higher multiple also raises questions about whether the stock is overvalued or if it justifies its premium based on future growth prospects and strategic initiatives.
DIS’ 2-Year P/S F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
One of the primary concerns is Disney's streaming business, which faces intense competition and profitability challenges. Despite the initial success of Disney+, the platform's growth has slowed significantly in recent quarters. Competitors like Netflix (NFLX - Free Report) , Amazon (AMZN - Free Report) -owned Amazon Prime Video and Apple (AAPL - Free Report) -owned Apple TV+ continue to invest heavily in content, making it increasingly difficult for Disney to maintain its market share. Additionally, newer entrants such as HBO Max and Paramount+ have further fragmented the streaming landscape, putting pressure on subscriber acquisition and retention costs.
The company's traditional media networks segment continues to struggle with cord-cutting trends. As more consumers shift away from cable and satellite TV, Disney's once-reliable revenue streams from ESPN and other cable channels are eroding. This decline has not been fully offset by gains in streaming, creating a challenging transition period for the company.
The company's film studio, historically a strong performer, has experienced mixed results in recent years. While some franchises continue to deliver at the box office, others have underperformed, raising questions about the sustainability of Disney's content strategy and its ability to consistently generate blockbuster hits.
Financially, Disney's heavy investments in streaming and content production have put pressure on margins and free cash flow. The company's substantial borrowings of $47.5 billion, coupled with a limited cash position of $5.95 billion, could become a concern if profitability doesn't improve as quickly as anticipated.
These headwinds have overshadowed Disney's strengths, leading to a loss of investor confidence and subsequently reflecting upon the stock’s 8.8% return in the past year, underperforming the broader Zacks Consumer Discretionary sector’s growth of 15.2%.
1-Year Performance
Image Source: Zacks Investment Research
DIS Banks On Parks, Experiences and Products Business
Amid this downturn, Disney's theme parks and cruise line businesses are emerging as potential catalysts for a much-needed recovery.
The theme park division, in particular, has been a bright spot in Disney's recent financial reports. In third-quarter fiscal 2024, Parks, Experiences and Products revenues (36.2% of revenues) rose 2.3% year over year to $8.38 billion. Domestic revenues were $5.82 billion, up 3% year over year. International revenues increased 4.6% year over year to $1.6 billion in the reported quarter.
Parks such as Walt Disney World in Florida and Disneyland in California have seen a steady increase in visitor numbers. The introduction of new attractions, immersive experiences and strategic pricing models has helped drive revenue growth in this segment by enhancing guest engagement.
The company has strategically unveiled highly anticipated additions like Tiana's Bayou Adventure, a log flume ride based on Disney's The Princess and the Frog. It is located at Walt Disney World's Magic Kingdom and will open at Disneyland in November 2024. Walt Disney World Resort hotels have started taking reservations for stays at the new Island Tower at Disney’s Polynesian Villas & Bungalows, beginning from Dec. 17, 2024. This area is also coming up with Moana’s Voyage — a whimsical, new splash area inspired by Disney’s beloved movie Moana, featuring life-size sculptures of Moana and her iconic canoe.
On the cruise front, Disney Cruise Line is expanding its fleet with new ships, including the upcoming launch of Disney Treasure (December 2024), Disney Adventure (fiscal 2025) and Disney Destiny (November 2025).
These anticipated attractions, coupled with pent-up demand for travel and entertainment, position Disney's parks and cruises as potential catalysts for the company's financial rebound and stock performance improvement.
The Zacks Consensus Estimate for fiscal 2024 revenues is currently pegged at $91.43 billion, indicating 2.85% year-over-year growth. The consensus mark for fiscal 2024 earnings has remained steady $4.92 per share over the past 30 days, indicating 30.85% growth from the year-ago period.
Image Source: Zacks Investment Research
Conclusion
For current shareholders, holding the stock may be a prudent strategy, allowing time for Disney's ongoing initiatives to bear fruit. As Disney continues to reshape its business model, investors will closely monitor the company's ability to strike the right balance between streaming profitability, traditional media success and navigating the ever-changing competitive landscape while capitalizing on the strengths of its Parks and Cruises. The coming quarters will be crucial in determining whether Disney's strategic moves, including the recent price hikes and sports media deals, will pay off in the long run.
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 pressure it faces despite the enduring power of the Disney brand.
Image: Shutterstock
Is Disney Stock a Buy, Sell or Hold at a P/S Multiple of 1.77X?
As we approach the end of 2024, investors are closely scrutinizing Disney (DIS - Free Report) and weighing their options. With its stock trading at a 2-year forward price-to-sales (P/S) multiple of 1.77, compared to the Zacks Media Conglomerates industry average of 1.07X, many are wondering whether Disney represents a buying opportunity or is a stock to sell or hold.
Disney's premium valuation relative to its peers reflects the market's continued faith in the company's brand power and diverse revenue streams. However, this higher multiple also raises questions about whether the stock is overvalued or if it justifies its premium based on future growth prospects and strategic initiatives.
DIS’ 2-Year P/S F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
One of the primary concerns is Disney's streaming business, which faces intense competition and profitability challenges. Despite the initial success of Disney+, the platform's growth has slowed significantly in recent quarters. Competitors like Netflix (NFLX - Free Report) , Amazon (AMZN - Free Report) -owned Amazon Prime Video and Apple (AAPL - Free Report) -owned Apple TV+ continue to invest heavily in content, making it increasingly difficult for Disney to maintain its market share. Additionally, newer entrants such as HBO Max and Paramount+ have further fragmented the streaming landscape, putting pressure on subscriber acquisition and retention costs.
The company's traditional media networks segment continues to struggle with cord-cutting trends. As more consumers shift away from cable and satellite TV, Disney's once-reliable revenue streams from ESPN and other cable channels are eroding. This decline has not been fully offset by gains in streaming, creating a challenging transition period for the company.
The company's film studio, historically a strong performer, has experienced mixed results in recent years. While some franchises continue to deliver at the box office, others have underperformed, raising questions about the sustainability of Disney's content strategy and its ability to consistently generate blockbuster hits.
Financially, Disney's heavy investments in streaming and content production have put pressure on margins and free cash flow. The company's substantial borrowings of $47.5 billion, coupled with a limited cash position of $5.95 billion, could become a concern if profitability doesn't improve as quickly as anticipated.
These headwinds have overshadowed Disney's strengths, leading to a loss of investor confidence and subsequently reflecting upon the stock’s 8.8% return in the past year, underperforming the broader Zacks Consumer Discretionary sector’s growth of 15.2%.
1-Year Performance
Image Source: Zacks Investment Research
DIS Banks On Parks, Experiences and Products Business
Amid this downturn, Disney's theme parks and cruise line businesses are emerging as potential catalysts for a much-needed recovery.
The theme park division, in particular, has been a bright spot in Disney's recent financial reports. In third-quarter fiscal 2024, Parks, Experiences and Products revenues (36.2% of revenues) rose 2.3% year over year to $8.38 billion. Domestic revenues were $5.82 billion, up 3% year over year. International revenues increased 4.6% year over year to $1.6 billion in the reported quarter.
Parks such as Walt Disney World in Florida and Disneyland in California have seen a steady increase in visitor numbers. The introduction of new attractions, immersive experiences and strategic pricing models has helped drive revenue growth in this segment by enhancing guest engagement.
The company has strategically unveiled highly anticipated additions like Tiana's Bayou Adventure, a log flume ride based on Disney's The Princess and the Frog. It is located at Walt Disney World's Magic Kingdom and will open at Disneyland in November 2024. Walt Disney World Resort hotels have started taking reservations for stays at the new Island Tower at Disney’s Polynesian Villas & Bungalows, beginning from Dec. 17, 2024. This area is also coming up with Moana’s Voyage — a whimsical, new splash area inspired by Disney’s beloved movie Moana, featuring life-size sculptures of Moana and her iconic canoe.
On the cruise front, Disney Cruise Line is expanding its fleet with new ships, including the upcoming launch of Disney Treasure (December 2024), Disney Adventure (fiscal 2025) and Disney Destiny (November 2025).
These anticipated attractions, coupled with pent-up demand for travel and entertainment, position Disney's parks and cruises as potential catalysts for the company's financial rebound and stock performance improvement.
The Zacks Consensus Estimate for fiscal 2024 revenues is currently pegged at $91.43 billion, indicating 2.85% year-over-year growth. The consensus mark for fiscal 2024 earnings has remained steady $4.92 per share over the past 30 days, indicating 30.85% growth from the year-ago period.
Image Source: Zacks Investment Research
Conclusion
For current shareholders, holding the stock may be a prudent strategy, allowing time for Disney's ongoing initiatives to bear fruit. As Disney continues to reshape its business model, investors will closely monitor the company's ability to strike the right balance between streaming profitability, traditional media success and navigating the ever-changing competitive landscape while capitalizing on the strengths of its Parks and Cruises. The coming quarters will be crucial in determining whether Disney's strategic moves, including the recent price hikes and sports media deals, will pay off in the long run.
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 pressure 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.