A stock market sell-off in 2022 led Walt Disney's (DIS -1.01%) stock to plunge 44% as other entertainment companies suffered a similar fate. Disney shares have started to recover in 2023 but remain down 24% year over year, prompting the question: is this still a buying opportunity?
Disney celebrates a century of business in 2023, solidifying it as one of history's most successful entertainment companies. The House of Mouse has strong positions in a wide range of entertainment venues -- including the box office, streaming, and theme parks -- and the stock has a history of consistent stock growth.
Here's why Disney is a buy now.
A streaming business headed toward profitability
The COVID-19 pandemic and macroeconomic challenges have caused Disney to stumble in recent years, with its media and entertainment segment reporting a 42% drop in operating income in fiscal 2022. The declines were primarily driven by a hefty investment in streaming content as it strived to dominate the industry. While the exuberant spending helped Disney+ amass nearly 164 million subscribers, the financial losses also led investors to pull back in 2022.
However, Disney CEO Bob Iger has a plan to push the company's streaming branch to profitability by 2024 and boost its media segment. Iger's strategy involves cutting costs by $5.5 billion, with $3 billion coming from reductions in Disney's content spending. The company will scale back its output by concentrating on its most profitable franchises, such as Marvel and Star Wars.
Moreover, Citigroup analysts believe Disney plans to sell its 67% stake in Hulu to Comcast, which owns the remaining 33%, over the next year. Hulu is valued at about $28 billion, with Citi researchers reporting Disney would likely allocate the bulk of the purchase price to reducing debt and repurchasing stock.
The sale would be positive for the company's earnings per share and allow management to focus solely on its flagship streaming service, Disney+, as well as its other core businesses. Its thriving parks segment saw revenue and operating income climb over 70% in 2022.
Dividends and projected stock growth
In May 2020, pandemic headwinds caused Disney to halt dividends as it was challenged by theater and theme park closures. However, CEO Bob Iger revealed in an earnings call on Feb. 8, "Now that the pandemic impacts to our business are largely behind us, we intend to ask the Board to approve the reinstatement of a dividend by the end of the calendar year." The executive also stated the initial offering would be "modest," with hopes to expand it over time.
Disney's dividends were fairly meager before their suspension, and will likely start off even smaller. However, their proposed return is a positive sign for the company's financial trajectory. Analysts seem to agree as their consensus 12-month price target is $128 -- or 29% higher than its current position.
Walt Disney is an entertainment behemoth. Recent challenges have led its stock to decrease just shy of 1% over the last five years. However, its 70% growth in the past decade proves it's an investment you can buy now and hold indefinitely as it gradually trends up. Disney's expansion in streaming has been costly, but the diversification it has brought to earnings and the market's potential growth are likely to pay off substantially over the long term.
With a streaming business headed toward profitability and a stock price forecast to grow, Disney shares are a must-buy after the recent sell-off.
