The Walt Disney Co. (DIS) is a leading global entertainment and media business that owns numerous extremely popular and valuable franchises, characters, and businesses, such as Star Wars, Mickey Mouse, and Pixar. Between the wide name recognition of both the business’ brand and its individual products, DIS possesses compelling competitive advantages and pricing power that derive from its strong pricing power and customer loyalty. (See Disney stock analysis on TipRanks)
The main value for DIS comes from the numerous ways in which it monetizes its powerful brands, vast library of highly valuable content, and large and loyal global consumer network. Between its wildly popular theme parks, feature-length Hollywood films, toys and apparel, sports and other themed TV channels, and its recently added high-growth streaming businesses, DIS is a very profitable and well-diversified business. It has been able to generate strong returns on equity, and can be expected to have strong staying power for decades to come.
Additionally, with a BBB+ credit rating from S&P, no dividend to burden the balance sheet, and nearly $16 billion in cash on hand, the company is in great shape to weather any unforeseen challenges. Moreover, it simultaneously invests aggressively to emerge a winner in the highly competitive streaming wars.
That said, the streaming wars will not be easy to win. Amazon (AMZN) just announced a massive $8.45 billion acquisition of Hollywood studio MGM (MGMB), significantly upgrading its already highly competitive position in the space. Meanwhile, AT&T (T) recently made a significant deal as well to bolster its media and streaming business. Last but not least, Netflix (NFLX) continues to invest aggressively to retain its position as the world’s number one streaming giant.
Despite the heavy competition, DIS still has a good chance to emerge a winner. Its pluses include a massive existing content library, powerful brands, deep pockets, and strong pool of in-house talent that it can draw on to create new content.
Additionally, the valuation is reasonable. The price to forward normalized earnings is fairly high at 46.5x, but revenue is expected to surge by 25.2% in 2022 and normalized earnings-per-share are expected to grow by 19.4% in 2021 and 109.4% in 2022. That makes today’s price a more reasonable 35x expected 2022 earnings.
Wall Street’s Take
From Wall Street analysts, DIS earns a Strong Buy from average analyst consensus, based on 18 Buy ratings and 3 Hold ratings in the past 3 months. Additionally, the average price target of $209.89 puts the upside potential at 17.5%.
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Summary and Conclusions
DIS has a a long and rich history of entertaining generations of loyal fans of its numerous popular franchises. Furthermore, it is well-positioned to emerge a winner in the cutthroat streaming industry.
Nevertheless, it still faces numerous challenges from companies like NFLX, AMZN, and others who are also investing aggressively to strengthen their positions in the streaming space. Meanwhile, Disney's other business should continue to thrive and achieve steady growth for decades to come. Particularly, its theme parks should recover nicely over the next few years as COVID-19 headwinds dissipate.
Overall, the business is likely to continue growing and analysts remain very bullish on the shares here. Given that the valuation remains reasonable, it could be an attractive way to invest in the continued growth of the streaming industry.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.