It's been a good year for Walt Disney (DIS 0.92%) investors. The stock hit a 52-week high after its blowout financial update in February. The shares have pulled back lately, but with a 26% year-to-date gain, it's easily trouncing the market averages.
It's a welcome break. The media giant's shares have lost to the S&P 500 in each of three previous years. There are some good reasons to expect the streak to turn positive this year. Let's go over some of the reasons the House of Mouse could be a smart investment right now.
1. Disney+ is no longer a negative
It was a hot start to Disney+ after the late-2019 launch that helped drive the shares to an all-time high in early 2021. It's the massive losses for the premium streaming service that have weighed on the shares since then. Disney's direct-to-consumer segment -- the business that includes Disney+, Hulu, and ESPN+ -- posted a whopping $4 billion operating deficit in fiscal 2022. Its health is improving dramatically on that front.
The segment's $138 million operating loss in the first fiscal quarter of 2024 is a lot better than the $984 million deficit it checked in with a year earlier. CEO Bob Iger expects Disney+ to be profitable by the September quarter of this year. Bundling, higher prices for ad-free tiers, and a new thriving ad-supported plan for Disney+ have helped boost the top line. Disney's cost cuts have helped at the other end.
Image source: Disney.
2. Get ready to bounce back at the box office
It's been a quiet start this year at the local multiplex for Disney, but unlike last year's disappointing showing, 2024's softness is by design. Disney doesn't have any of the 24 highest-grossing domestic theatrical releases this year. Its only notable film this year has been The First Omen, which has cleared a pedestrian $18 million in admissions since premiering earlier this month.
All of this is about to change. There is a potential blockbuster coming out nearly every month through the end of this calendar year.
- May 10: Kingdom of the Planet of the Apes
- June 14: Inside Out 2
- July 26: Deadpool & Wolverine
- Aug. 16: Alien: Romulus
- Oct. 18: A Real Pain
- Nov. 27: Moana 2
- Dec. 20: Mufasa: The Lion King
They won't all be nine-figure winners. They don't need to be. Disney just needs a couple of films in its 2024 slate to succeed to make investors forget about Disney's disappointing 2023 performance at the box office.
3. Disney believes in Disney
Positioning itself for success in the proxy battle that ended in Disney's favor three weeks ago, the entertainment leader did a lot of things to make itself more appealing to shareholders and even opposing activists. One thing the board did earlier this year was authorize up to $3 billion in share repurchases. This is Disney's first buyback in six years.
The stock may not seem conventionally cheap. It's trading for 26 times this year's Wall Street profit target and 22 times next year's analyst forecast. However, Disney has now posted three consecutive quarters of accelerating earnings beats. Put another way, Disney is increasing its lead over the lowballing analysts shrinking in its rearview mirror. This is a great time to repurchase your shares, boosting your per-share profitability in the process.
4. It's spending money while saving some
Disney is getting prudent with its costs, even beyond the push to make Disney+ profitable within the next five months. It turned heads a year ago when it announced plans to achieve $5.5 billion in annual savings by the end of fiscal 2024. Now it expects to exceed $7.5 billion. However, it's still willing to spend where it matters.
Disney recently announced a $1.5 billion investment in Fortnite creator Epic Games. A knock on Disney 30 years ago was that it was primarily a player in family entertainment. It didn't offer much for families with older kids. In 1996, it acquired the media mogul that owned both ABC and a majority stake in ESPN. It has gone on to snap up Marvel, Lucasfilm, and 21st Century Fox, producing some of Hollywood's biggest movies over the past few years. Why wouldn't it want a strategic stake in a gaming company for which 85% of players are under 35?
Despite the cutbacks, Disney also didn't have a problem announcing a few months ago that it would be doubling its investment to $60 million over the next 10 years for its theme parks, cruise lines, and other experiences. This has been Disney's most resilient business, and one that requires theme park updates and bar-raising ships to keep drawing guests at higher price points.
5. The improvements are everywhere
The weak spots in Disney's armor are starting to get patched up. Bears love to gnaw away at the cost-heavy ESPN, but that business just posted a surprising operating profit in Disney's latest report. Its legacy networks business should get an ad boost this year as political spot spending sees a surge heading into the November elections.
It's not just ESPN that's learning how to win the big game. Disney+ posted a 9% increase in average monthly revenue per paid account in its latest quarter. Disney not only reinstated its dividend late last year but also increased the rate of its semiannual payouts by 50% for the next distribution.
Disney surprised analysts earlier this year in a rare case of offering guidance. With the contested annual shareholder meeting weeks away, it's probably not a coincidence that Disney was chattier than usual in its February earnings call, but it had something impressive to say. Disney expects its annual adjusted earnings per share in fiscal 2024 to climb at least 20%, to $4.60 or better. Wall Street pros were perched at $4.27 a share at the time, and even now, the consensus remains at $4.40 a share.
The upside for the leading media stock is hiding in plain sight. Now's the time to buy Disney stock like there's no tomorrow -- or Tomorrowland.
