In a stunning move that has set the financial world abuzz, James Gorman, the esteemed executive chair of Morgan Stanley (MS) and a newly inducted board member of Walt Disney (DIS), made waves by acquiring over $2 million worth of Disney stock on May 8. This sizable insider purchase, a first for Disney this year, emerges against a backdrop of shifting consumer preferences and fierce competition within the streaming industry.
Following Disney’s May 7 earnings report, which saw a revenue miss prompting a stock sell-off despite achieving profitability in its streaming business for the first time, Gorman’s bold stock acquisition underlines a pivotal moment for the entertainment behemoth. The battle for supremacy in the streaming arena, featuring heavyweights like Netflix, Amazon, and Apple, has further intensified as a recent study by PwC forecasts the global streaming market to surge to $75.5 billion by 2027, expanding at a 7.2% compound annual growth rate.
Disney Stock Resilience
Walt Disney Company’s stock has faced a tumultuous journey, sliding 40% over the past three years. However, recent performance signals a resurgence, with Disney advancing by 13.6% in the last 52 weeks and 14.5% year-to-date, despite a 16.5% retreat from its late-March peaks.
Assessing Disney’s Value
Examining shareholder returns, Disney’s dividend track record reveals fluctuations, with dividends making a comeback in 2023 after a pause. The company hiked its semi-annual dividend by 50% to $0.45 per share, positioning the current dividend yield at around 0.87%. Coupled with a robust market capitalization of about $188.5 billion, Disney currently boasts a forward Price-to-Earnings (P/E) ratio of 21.72, nearly 50% lower than its five-year historical average. Similarly, DIS trades at a forward Price/Sales ratio of 2.06, a discount from its average P/S of 2.99.
Gorman’s strategic move to acquire 20,000 DIS shares at an average price of $106.03 each, totaling over $2.1 million, underscores his belief in Disney’s intrinsic value, particularly amidst post-earnings sell-offs. Noteworthy is the fact that the last 7-figure insider buy on DIS dates back to 2002 when then-Chair Michael Eisner purchased over 725K shares worth $9.8 million.
Unveiling Q2 Earnings at Disney
Disney’s fiscal Q2 2024 results portray a mixed picture. While the company surpassed analyst expectations with adjusted earnings per share of $1.21 against a forecast of $1.10, its revenue of $22.1 billion fell short of the $22.08 billion estimate, marking the fourth consecutive top-line miss. Despite the downbeat revenue, Disney raised its full-year EPS growth projection to 25%, up from the previous 20%, with analysts eyeing 26.6% EPS growth this fiscal year to $4.76. Disney anticipates generating approximately $8 billion in free cash flow for the fiscal year, approaching pre-pandemic levels.
Driving Forces Behind Disney’s Growth
As Disney’s latest movie release, “Kingdom of the Planet of the Apes,” enjoyed a stellar opening, raking in $56.5 million in the US and a global total of $129 million, the company collaborated with Walmart to enhance digital advertising efficacy. This strategic move, announced alongside Gorman’s stock purchase, aims to spur innovation and tap into new growth avenues in the digital ad domain.
In a foray into the digital and gaming sectors, Disney initiated a $1.5 billion partnership with Epic Games to co-create a new games and entertainment universe leveraging Epic’s Fortnite platform, reinforcing Disney’s presence in the digital and interactive media sphere. Furthermore, Disney bolstered its position in the parks and resorts segment by securing a $735 million five-year commercial mortgage-backed securities term loan to refinance three prominent properties, signaling a commitment to enhancing its resort infrastructure.
Moreover, Disney’s fusion of its Indian TV and streaming assets with Reliance Industries forms an $8.5 billion entertainment powerhouse, positioning Disney ahead in one of the most populous and rapidly expanding markets globally.
Analyst Projections for Disney Stock
The investment community exudes optimism towards Disney, with 18 out of 27 analysts advocating a “strong buy,” 4 recommending a “moderate buy,” 4 suggesting a “hold,” and only 1 advising a “strong sell.” The prevailing sentiment leans towards a “strong buy,” underscored by a mean target price of $126.96, implying a potential upside of approximately 22.8%.
With insiders and analysts signaling confidence, strategic alliances paving the way for future growth, and a promising financial outlook, Disney seems poised for a remarkable resurgence. As Mr. Gorman embarks on the latest stock acquisition, investors eyeing Disney may find the current dip an opportune moment to partake in the potential magic.