Analysis: Disney Could Turn Around, But Investors Urge A Stronghold On DIS Stock

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Disney (NYSE:DIS) investors and shareholders have been met with a challenging start to the second quarter as the media and entertainment giant has found itself in the crossfire of a political battle.

On April 21, the Florida Republican-governed legislature was able to pass a bill that could see The Walt Disney Company losing its special district privileges within the outer limits of Orange and Osceola counties, FL. The bill, which was originally introduced by state Governor Ron DeSantis – passed a vote both in the Senate and the state’s House of Representatives.

If legislatures are able to pass on the bill, DeSantis would be able to sign it into law in the coming months, dissolving any special privileges enjoyed by both the company, its employees, and residents of Reedy Creek county by June 2023.

While political agendas have pushed DIS shares to tumble in mid-April trading sessions, further declining interest in online streaming services such as Netflix (NFLX) has also caused major headwinds for its share prices.

Netflix recently announced it has lost roughly 200,000 subscribers, with warning signs the streaming mammoth could lose up to 2 million subscribers by the end of the second quarter.

Entertainment stocks, including DIS, have been facing a whirlwind year so far, even as the pandemic looks to wind down somewhat. DIS did reach its highest closing price back on March 8, 2021, closing at $201.91, and as of April 2022, prices tumbled to as low as $126.82.

Even with all of its main U.S-based theme parks now fully operational again, an increased number of streaming subscribers, and trailing billions in revenue from its high-grossing live-action and animation films – could DIS soon start to fizzle out as the company battles both socio-political and economic scrutiny?

Disney Streaming Services Provokes Investor Buying Interest

While Disney has been caught in some headlining legal battles, looking at how its streaming services have performed presents a different picture.

When the company launched its streaming services back in October 2019, months ahead of the unknown lockdowns and global pandemic, Disney saw about 26.5 million global subscribers at the start of 2020. Now, more than two years later, the company added about 11.8 million new subscribers in the first quarter of 2022, bringing the total amount up to 129.8 million Disney+ users.

As of 2021, Disney currently operates around 25.5% of the U.S. and Canadian box office market. This is almost double from the 12% market share they held in 2020. The film and television conglomerate has over the last few decades acquired some recognizable companies, including Touchstone Pictures, Marvel, Lucasfilm, ESPN, The History Channel, and Pixar, among others.

Disney’s stake in these companies has helped them to accelerate its influence in the box office market, and its bulging portfolio is yet far from completion.

Among its highly popular streaming offering, theme parks, cruises, and other consumer products, Disney reported around $21.8 billion in fiscal first quarter earnings. Adjusted share earnings of $1.06 per share were performing stronger than the S&P Global Market Intelligence predictions of $0.63 on $10.96 billion.

Its strategic mergers and acquisitions gave the company the traction required to build up a major following for its now booming subscription service packages. The entertainment conglomerate, which also operates ESPN+ and ABC-owned Freeform Network helped Disney through a challenging couple of years, as the pandemic caused Disney theme parks, cruises, and independently operated movie theaters to come to a halt at the height of the pandemic.

According to an official “The Walt Disney Company Reports Fourth Quarter and Full Year Earnings for Fiscal 2021,” the company saw a 3% change in its revenue between the fiscal year-end 2020 and 2021. Price per diluted share earnings for this same period also increased by 13%, from $2.02 in 2020 to $2.29 in 2021.

Even with the positive growth experienced throughout most of the pandemic, investors are now feeling bearish, holding out any selloffs for the second quarter as potential legal battles have put a massive blow to the highly lucrative shares.

With more COVID-related restrictions being lifted, and the company seeing soaring demand for both its domestic and international services and products, the company could experience a stronger full earnings year.

Although it’s clear that the COVID pandemic and regulatory lockdowns saw the company operate skeletal attractions for the time, 2022 could hold in a stronger gain in revenue and total earnings. These domestic services, alongside the growing international influence could see price per diluted share surpass $2.80 or perhaps $3.00.

There’s a lot at stake here, and even with the ongoing social-political clouts that are hovering over Disney’s head, the company is far more powerful than what we may think. These and other accusations that the company had endured over the last couple of months could perhaps push Disney to re-establish trust and commitment for the brand in both consumers and investors.

Picky Purchases

Looking back, Disney started yielding dividend payouts back in 1989, with yields increasing from 0.45% to 1.48% as of 2022. Changing consumer trends and globalized market expansion have helped add to the growing yield increases, alongside the high rising stock prices.

Since 2015, dividend yields have been paid out semi-annually, with the exception being in 2020 when the company announced it would halt payouts during the first part of the year as financial losses caused by the pandemic ensued.

So far, Zacks Rank currently places DIS at a #3 Strong Hold, even as second-quarter shares estimates have jumped from $1.08 per share to $1.15 per share. A cohort of bullish investors currently estimates that share estimates could go as high as $4.90 per share for the year ahead.

The current estimate is still somewhat higher than the $3.03 per share investors obtained for the fiscal 2021 year, which was a 270% improvement from 2020.

A strong first quarter for 2022 and adjusted earnings at $1.06 per share was way above the $0.32 per share for the same period of 2021. But not all has been long-lived in the picturesque world of Disney, as DIS finally came off its 52-week high of more than 33% in March 2022 according to IBD Marketshift analytics.

Ongoing developments have been weighing DIS stock down over the last few months, as prices have been zigzagging to and from $118.15 and $189.22 in the last year.

Even though company share prices have been dwindling, there could be an upside for DIS in the long run. Looking at the current analysis and growing market, we could see DIS hit new highs in the coming months of $190.00. With the increased valuation, the company could further expand its global reach in both film and direct-to-consumer goods.

Investor consensus has been all over the market, and whether some are feeling bullish or predict bearish performance for the remainder of the year, Disney is not allowing political clout to halt its expansion. The company announced it’s looking to expand its consumer services and products to more than 160 different countries in the next year, with Disney+ leading the pact as the main point of interest.

These plans, along with more than $33 billion on the books to add more content along with its existing streaming options, is perhaps what’s keeping DIS in the stronghold for some buyers currently.

Catering to individual investors

Perhaps Disney can consider an alternative route in the coming year, catering to individual investors instead of keeping them all under one umbrella.

In a recent discussion, Mad Money host Jim Cramer suggested that if DIS is set to regain its traction of the last year, the company could perhaps focus on catering to individual investors with additional services and product offerings.

Cramer, alongside the Squawk on the Street presenters, shared how investors could perhaps obtain access to investor-only offers such as early access to Disney theme parks, or receive seasonal passes at discount rates if they can prove they’re shareholders of the company.

This would take a lot of consideration on Disney’s part but could mean that investors will be more interested in its current low-priced stocks.

But these only remain suggestions, and it’s perhaps unlikely to ever be achieved. Cramer and his cohort of analysts were prompting how entertainment companies such as AMC (AMC) and Netflix could also introduce the same practice to help uplift investor sentiment on the stock market as share prices stagnated in recent weeks.

Recent proprietary stock-trading systems have left DIS with a Fundamental Grade B rating. The rating doesn’t necessarily impact the stock performance or stock price movement all that much, but it should be added that the rating is given as Disney has added significant revenue growth in recent years.

Perhaps if Disney is able to keep growing its revenue and cash flow, it could mean that the rating could linger for longer, presenting a more positive side to its stock.

Yet, the fundamental Grade B rating DIS received is not holding back its strong performance, both on the consumer and stock market. Disney holds a strong brand, and an even stronger influence in an array of companies, which can help overshadow current market conditions and performance.

Future Outlook

Disney, like many other companies, has come under scrutiny concerning its position within the socio-political demographic of markets. Yet, these have not kept them from pursuing their plans to grow into untapped markets across the world.

There’s perhaps some irony attached to these scenarios but DIS could still see a strong rebound in the coming months.

Not all negative situations are long-lived for major companies that are seeing billions in annual revenue, and Disney is no different.

Potential plans to expand, and to spend billions on amplifying its brand voice could be the lifeline Disney needs as other leading streaming services such as Netflix are struggling to see quarterly consumer growth.

Even with the improvements and growth of Disney+, this, unfortunately, won’t be the only lifeline that can hold up stock growth for the remainder of the year. The company has seen other revisions to its various parks and other direct-to-consumer products which has significantly helped boost annual revenue.

The revival could be what Disney needs, and it’s not without a lot of effort and billions of investments that the company has been able to mitigate financial losses over the last few years as the pandemic ensued and threatened to keep theme parks closed.

Final Considerations

The bottom line is that DIS is undergoing a rough patch at the moment, and the company is set to deliver its second-quarter earnings by May 2022. This will help to give investors a new perspective on their stake in the company and how to better manage their shares.

DIS remains a stronghold for now, with the potential to move sideways to become a lucrative stock purchase perhaps in the third or fourth quarter of the year. Disney is not completely bearish, and although external hurdles have left investors short-spoken, perhaps it’s better to add DIS now, while it’s still well-priced, and hold for future gains as the company will only look to expand in the coming years.