Last month, entertainment company The Walt Disney Company (DIS) announced the return of Robert A. Iger to lead Disney as CEO, succeeding Bob Chapek. Earlier, Mr. Iger had served as CEO for 15 years and has been associated with DIS for more than four decades.

Investor Jeff Sica expects financial wins for DIS after the management change. Moreover, the company could benefit from the sequel to the blockbuster movie “Avatar” hitting theaters recently.

Since the CEO change announcement on November 21, the stock has gained 2.4% to close its last trading session at $94.66. However, the stock has declined 38.9% year-to-date and 38% over the past year. It is trading lower than its 50-day moving average of $97.54 and 200-day moving average of $109.95, indicating a downturn.

Here are the factors that could affect DIS’ performance in the near term:

Mixed Financials

For the fiscal fourth quarter ended September 2022, DIS’ revenues increased 9% year-over-year to $20.15 billion. Net income from continuing operations rose 1% from the prior-year quarter to $162 million.

However, excluding certain items, its EPS declined 19% year-over-year to $0.30, missing the consensus estimate by 46.9%. Its free cash flow decreased 10% from the prior-year period to $1.38 billion.

Stretched Valuation

In terms of its forward P/E, DIS is trading at 29.58x, 72.5% higher than the industry average of 17.15x. The stock’s forward EV/EBITDA multiple of 14.27 is 72.7% higher than the industry average of 8.26. In terms of forward Price/Cash Flow, it is trading at 55.42x, 522.4% higher than the 8.90x industry average.

Weak Profitability

DIS’ trailing-12-month gross profit margin and EBITDA margin of 34.24% and 14.50% are 32% and 23.5% lower than the industry averages of 50.32% and 18.95%, respectively.

Its trailing-12-month ROCE, ROTC, and ROTA of 3.48%, 2.66%, and 1.54% are 43.3%, 35.6%, and 32.8% lower than their respective industry averages of 6.14%, 4.13%, and 2.30%.

POWR Ratings Reflect Bleak Prospects

DIS’ POWR Ratings reflect the company’s bleak outlook. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DIS has a Value and Quality grade of D, in sync with its stretched valuation multiples and weak profitability.

The stock also has a D grade for Momentum, consistent with the fact that it is trading below its moving averages.

In the 16-stock Entertainment – Media Producers industry, DIS is ranked #12. The industry is rated F.

Click here to see the additional POWR Ratings for DIS (Growth, Stability, and Sentiment).

View all the top stocks in the Entertainment – Media Producers industry here.

Bottom Line

Although Mr. Iger’s return as CEO has lifted investor sentiment, the company’s bottom line decline looks concerning. Given the slowdown in momentum and weak profitability, DIS might be best avoided now.

How Does The Walt Disney Company (DIS) Stack up Against Its Peers?

While DIS has an overall POWR Rating of D, one might consider looking at its industry peer, AMC Networks Inc. (AMCX), which has an overall B (Buy) rating.

DIS shares rose $0.33 (+0.35%) in premarket trading Tuesday. Year-to-date, DIS has declined -38.89%, versus a -15.03% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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