It's a round number that just doesn't seem to fade in Walt Disney's (DIS -0.56%) rearview mirror. Shares of the media giant closed below $100 on Tuesday, the first time in six weeks that it has buckled below a triple-digit price tag at the end of a trading day.
Round milestones are inconsequential in terms of valuation, but they're still ghosts that haunt the House of Mouse like its own Haunted Mansion attraction. You know, the classic dark ride through a manor that features 999 happy haunts -- but there's room for 1,000? Making matters worse, the stock hit an all-time high two years ago when it briefly peaked above $200. How can Disney be half as valuable now under Bob Iger than it was a year into Bob Chapek's tenure?
The chilling challenge is to find a way out
Disney stock opened just above $100 the day after the company announced that Iger would be back as CEO. How can it be trading lower now? In a little more than three months, he has announced billions in cost savings that should turn Disney+ profitable by the end of next year, promised to give Disney's creative team more control in their art, and made theme park enthusiasts smile again.
The market itself has also been flat in that time -- a mere 0.3% higher -- but why isn't Disney beating the market under the second coming of Iger? Expectations were exceeded in last month's blowout quarter, the first earnings call under Iger's Mickey watch. Disney has had the top domestic draw at the box office all but two weeks since he came back. Even the social distancing stance that the media giant took with the dividend three years ago is going away, despite the fact that the payouts won't feel like much in this current interest rate climate.
Image source: Disney.
Iger is checking off all or at the very least most of the boxes that should lead to success for Disney investors. It's not just about easing the pressure points that pained Disney creators and turnstile regulars. Disney's near-term valuation prospects are also improving. Analysts see revenue climbing a modest 8% in this fiscal year that ends in September, followed by an even softer 6% top-line climb in fiscal 2024. The news is kinder on the bottom line, with Wall Street pros targeting per-share improvement of 18% in fiscal 2023 and 33% next year.
With Disney shares sliding since approaching $120 three weeks ago and analyst profit targets rising following Iger's return, the future valuation estimate is the best it's been in some time. Disney stock is trading for just 18 times next year's expected earnings.
There are factors outside of Disney naturally weighing on the entire market of media stocks. Inflation remains stubborn, and the economy is showing signs of cracking as consumers are charging more than they can repay when credit card bills arrive. The ad market that Disney needs to make its media networks and ad-supported streaming services tick is already weakening. Intensifying global conflicts can limit the appeal of Disney's gated attractions to international visitors.
It still doesn't seem fair. Disney stock is losing to the market in Iger's second tenure at the helm, but the company has improved substantially in every regard since his return. The stock shouldn't stay down for long, especially when investors realize how much the business has recovered.
