Walt Disney's (DIS 0.82%) faced some tough times over the past few years -- from the pandemic temporarily shutting down its theme parks to higher inflation weighing on the consumer's ability to make discretionary purchases (such as a trip to Disney or a ticket to see a Disney movie). To make matters worse, costs ballooned as the entertainment giant invested in its streaming services.
But longtime chief executive officer Bob Iger returned late last year to set Disney on the path to growth, and things are looking brighter. For example, the company is on track to surpass cost-cutting goals.
Still, Disney's share price doesn't reflect any of the good news. The stock has lost 8% since the start of the year, and that's why you may be wondering whether you really should buy Disney stock right now. Let's find out.
Disney's weaknesses
First, a little background on Disney's strengths and weaknesses. We'll start with the problems first. As mentioned, the general economic context has weighed on Disney's earnings in recent times, as higher inflation hurt consumers' wallets and increased Disney's expenses.
On top of that, Disney's investment in streaming did boost subscribers, but at a cost. Last year, the streaming business -- known as direct-to-consumer -- posted a $4 billion operating loss, compared to a $1.6 billion operating loss in the previous year.
Disney also faces challenges at its TV business, which includes sports network ESPN, as people cancel their cable subscriptions and switch to streaming services. Iger says he aims to shift ESPN to streaming, and he's even considering partnerships or selling a stake in the network. Right now, Disney owns a majority stake in ESPN, while Hearst Communications owns a minority position.
Finally, Disney also has struggled at the box office, with recent lackluster releases such as Indiana Jones and the Dial of Destiny and Haunted Mansion. Regardless of the quality of a particular film, new theatrical releases face one big challenge -- and that's the popularity of streaming. Many people choose to wait to watch a movie at home, making it difficult for new releases to win at the box office.
NYSE: DIS
Key Data Points
Progress along the path to recovery
Now, let's get to the strengths, as well as progress Disney has made along the path to recovery. Disney's theme parks are among the most visited worldwide. And the company's Parks, Experiences, and Products business has delivered compound annual growth rates of 6% and 8% for revenue and operating income, respectively. This includes the three fiscal years prior to the pandemic and the period from 2022 through today.
In the most recent quarter, Walt Disney World in Florida showed some weakness due to a difficult year-earlier comparison -- at a time the park featured 50-year anniversary celebrations. But Disney World revenue and operating income still came in 21% and 29% higher, respectively, from pre-pandemic levels. Another positive sign is high demand for annual passes, a program that recently resumed after Disney revamped offerings.
Disney's cruise ships represent a bright spot too, with fourth-quarter booked occupancy on the company's five ships at 98%.
There's reason to expect a lot more growth from this business segment in the years to come. Disney recently said it would invest $60 billion in the Parks, Experiences, and Products division over the coming 10 years, nearly doubling the investment it made in the unit over the past decade.
Disney aims to expand its parks and attract new guests. The company says for every one Disney guest, there are 10 consumers who like Disney but never have visited a park. As for cruises, Disney plans on nearly doubling global capacity by adding three new ships by fiscal 2026.
Set to beat cost-savings goals
Meanwhile, Iger says the company is set to exceed cost-savings goals of $5.5 billion thanks to job cuts, the streamlining of certain operations, and a general reining in of spending.
In spite of all this, Disney's shares haven't taken off. So let's get back to our question: Should you really buy Disney right now? It's impossible to predict when Disney shares may rebound and even climb. Some investors may want to see more progress from Iger before investing.
But there is reason to be optimistic about Disney's future, considering the points I made. And if the company continues to progress and meet goals, it should deliver earnings and share price growth over time. That means, trading at about 21 times forward earnings estimates, Disney shares look pretty reasonably priced today.
Of course, if you get in on the stock right now, you probably won't see your investment soar overnight, but that's OK. What matters is the long term, and over the coming years, your patience and early investment in this top entertainment company could pay off.
