The Walt Disney Company (DIS) has been making a comeback from pandemic driven lows with the reopening of its recreational parks and resorts across the United States, following solid progress on the vaccination front. The huge success of DIS’ over-the-top (OTT) media platform Disney+ has also contributed to its recovery because the platform crossed the 100 million-paid-subscribers mark within just 16 months of its launch. DIS’ net income for its fiscal second quarter, ended April 3, came in at $912 million, representing a 95% rise year-over-year. Its EPS has improved 92% from the same period last year to $0.50.

Robert (Bob) Iger, DIS’ CEO for the past 15 years, retired in February last year to be executive chairman of DIS’ board. Iger has been accredited with building Disney into one of the world’s largest and most admired media and entertainment companies, as well as with the successful launch of Disney+ in November 2019. DIS’ stock has gained 43.3% over the past year, and 15% over the past six months.

Iger’s personal trading activity on DIS shares have made investors skeptical, however. Iger sold $98.70 million  of DIS shares on June 1. The sale has been characterized as an attempt by Iger to diversify his portfolio. However, many analysts think that with a lower stake in the company, Iger’s position as the executive chairman of the board might be compromised. DIS’ stock has declined 2.2% year-to-date and 3.8% over the past month.

Here’s what we think could shape DIS performance in the near term:

Favorable Analyst Sentiment

A$0.57 consensus EPS estimate  for the current quarter, ending June 30,  2021, indicates a 612.5% rise year-over-year. DIS’ EPS is expected to rise 445% in the next quarter (ending September 2021), 18.3% in  2021, 110.9% next year, and at a rate of 51.7% per annum over the next five years. The company has an impressive earnings surprise history also;  it surpassed the consensus EPS estimates in each of the trailing four quarters. The Street expects DIS’ revenues to rise 30.4% in the fiscal fourth quarter (ending September 2021), 3.7% in the current year, and 26.1% next year.

Mixed Growth Story

DIS’ revenues have increased marginally over the past three years. The company’s total assets increased at a 26.9% CAGR over this period. However, its EBITDA and levered free cash flow have declined at CAGRs of 27.8% and 24.8%, respectively, over the past three years. The company’s earnings before interest and taxes declined at a 56.1% rate over the past three years.

Also,  DIS’ revenues and EBITDA declined 25.5% and 55.8%, respectively, year-over-year.

Consensus Rating and Price Target Reflect Potential Upside

Of the 21 Wall Street analysts that rated DIS, 18 rated it Buy, while three rated it Hold. The $209.89 median price target indicates a potential 18.5% upside from its last closing price of $177.18. The 12-month price target ranges from a low of $163 to a high of $230.

POWR Ratings Reflect Uncertainty

DIS has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

DIS has a B grade for Sentiment, and C for Growth and Stability. The favorable analyst sentiment and price target are  in sync with its  Sentiment grade. However, the stock has a 1.19 beta, which is consistent with its  Stability grade. Its relatively weak fundamental growth over the past three years justifies the Growth grade.

Of the 12 stocks in the B-rated Entertainment – Broadcasters industry, DIS is ranked #11.

Beyond what we’ve stated above, we have also rated DIS for Value, Quality and Momentum. Get all DIS Ratings here.

Bottom Line

Despite being one of the biggest media and entertainment companies worldwide, DIS’ financials are relatively weak. Furthermore, regardless of the success of Disney+, DIS reported substantial losses in 2020. Its revenues in the most recent quarter, ended April 3, declined 13% year-over-year to $15.61 million. Its trailing-12-month return on equity is negative. While the gradual reopening of the economy should allow the company to offset losses incurred last year, we think investors should wait until DIS generates growth under its new management before investing in the stock.

DIS shares were trading at $177.59 per share on Monday morning, up $0.41 (+0.23%). Year-to-date, DIS has declined -1.98%, versus a 13.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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