The upticks have been hard to come by for Walt Disney (DIS -0.45%) investors. Shares of the media giant entered the Memorial Day holiday weekend at $88.29, lower than both the $91.80 it closed at in mid-November before Bob Iger was introduced as Disney's CEO, as well as the $88.97 it closed at on the first trading day of this year.
Wall Street isn't donning mouse ears these days. Truist analyst Matthew Thornton is lowering his price target on the shares from $121 to $105 on Monday. He's sticking to his buy rating on the out-of-favor shares but lowering his near-term earnings outlook to factor in the surprising announcement two weeks ago that Disney World will be closing its Star Wars-themed hotel later this year.
The market doesn't always have to make sense, but the downticks don't seem fair or earned in this case. Disney, the company, is holding up considerably better than Disney, the investment. Let's go over some recent developments that make the media stock one of my favorite blue chip stocks for the final seven months of this year.
1. Disney is dominating the box office again
The live-action reboot of The Little Mermaid was the top draw at the local multiplex over the weekend. Disney has now been responsible for 5 of the 6 strongest opening weekends at domestic movie theaters since November of last year.
One can argue that theatrical distribution itself is still a problem. The total domestic box-office receipts for all movies over the holiday weekend fell just shy of $200 million, 10% below both the 2019 and even 2022 hauls. Critics will also point out that the industry is still 24% below the year-to-date ticket sales it generated in the last pre-pandemic year of 2019.
The trend is improving as 2023 plays out. Folks are coming back to the movies, and Disney is leading the way. More importantly, post-pandemic Disney has more ways to cash in on a hit movie through digital distribution than the old entertainment icon ever did.
Image source: Disney.
2. Disney+ is finally improving on the bottom line
Speaking of digital distribution, Disney+ went from being the catalyst that sent the media stock to an all-time high north of $200 two years ago to a deficit-riddled albatross sinking the shares now. It won't always be that way.
Iger has made it clear that turning Disney+ into a profitable segment by the end of fiscal 2024 is his top priority. It's at the heart of the $5.5 billion in annual savings that he's hoping to achieve by the time he steps down by the end of next year.
It's a tall order. Disney's streaming segment has produced an operating loss of $5.7 billion over the last six quarters. However, earlier this month -- in Iger's first full quarter as returning CEO -- Disney posted its smallest quarterly deficit for the business in more than a year. If Disney's direct-to-consumer segment continues to show sequential improvement, investors will have one less thing to worry about when it comes to the House of Mouse.
3. Theme parks have been a breathtaking ride
Disney's market-leading theme parks figured to be some of the hardest-hit businesses when the COVID-19 crisis shuttered the gated attractions. Disney World was closed for four months, while Disneyland was closed for more than a year. Most of its international destinations have had intermittent lockdowns.
Reality has been far kinder than the blueprint. Disney's theme-parks segment is generating record operating results these days. The lull only gave it time to improve its monetization efforts while making potential visitors hungrier for their next theme-park fix.
There will be challenges, in terms of both competitive threats and global recessionary fears. But Disney should be fine. Its parks are gradually bringing back experiences and perks that guests value, even with average revenue per guest sharply higher than before. It's not such a small world after all for Disney.
