It wasn't obvious at first, but Walt Disney (DIS -0.55%) disappointed its shareholders this week. The entertainment conglomerate reported that it earned $1.21 per share for the second quarter of its fiscal 2024 -- but only if you don't count charges taken for lost goodwill.
Counting those costs, Disney actually lost $0.01 per share.
Multiple analysts -- JPMorgan, UBS, and Wells Fargo among them -- responded by cutting their Disney price targets as low as $130. The analyst I want to focus on today, Rosenblatt Securities' Barton Crockett, also cut his price target, from $137 to $130 a share.
But Crockett also had a very specific comment about Disney stock that I think will interest you.
Is Disney stock a buy?
Crockett still thinks Disney stock is a buy. This, despite Disney losing money in the quarter and management raising "worries" about the health of its theme-park business.
Disney said it grew revenue 10% at its parks unit and operating profits 12%. The company also briefly turned its Disney+ streaming business profitable.
Problem is, Disney then turned around and warned investors that in the current Q3, streaming results will be "softer," and theme park revenue will be "roughly comparable to the prior year." (Translation: It won't grow at all.)
That doesn't sound good for Disney, and this explains why Disney stock sold off 10% on Tuesday. But according to Crockett, the bad news isn't really bad. The analyst expects Disney's parks business to rebound in Q4, for one thing. And if it doesn't turn around, then "activists will return and Disney will be in play for a breakup."
Abracadabra -- heads, Disney wins, and tails, Disney shareholders don't lose!
I still don't think this makes Disney stock worth $130, however. Such a price would value Disney at roughly $278 billion, including net debt. Yet Disney only forecasts $8 billion in free cash flow this year, implying a rich valuation of 35 times FCF.
However many pieces you break Disney into, that's still too high a price for too little free cash flow.
