Let's play a newsy version of the good, the bad, and the ugly. The good news is that Walt Disney (DIS +0.76%) stock is doubling the broader market's returns so far this year. The bad news is that it's still January. There's not a lot that we can conclude just because the entertainment giant's shares are up by nearly 4% this young year against a 2% uptick for the S&P 500 (^GSPC +0.23%).
The ugly? Well, you asked for it. Disney shares have lost badly to the market in each of the last three years. It hasn't even been close.
| Year | Disney | S&P 500 |
|---|---|---|
| 2021 | (15%) | 27% |
| 2022 | (44%) | (19%) |
| 2023 | 5% | 24% |
Source: Yahoo! Finance.
The result of that underperformance is that Disney stock now trades at less than half the price it peaked at 35 months ago. It would have to more than double to hit a new all-time high -- but first things first. Disney needs to end its problematic streak of losing to the market.
NYSE: DIS
Key Data Points
Party like it's 2024
It may seem incredible that the last time that Disney shares beat the market was in 2020, when the pandemic shuttered its theme parks, laid up its cruise ships, and limited its ability to crank out new theatrical releases. This year is also off to a turbulent start.
Disney is gearing up for a proxy battle at its annual shareholder meeting this spring. The character of Mickey Mouse has (somewhat) entered the public domain. Its movie studios have had to postpone at least three theatrical releases that the company had been counting on to premiere in 2024 as a result of the now-concluded Hollywood strikes.
However, getting lost in the noise are indicators that Disney is in better shape than many observers might think. Its money-draining streaming business remains on track to turn profitable by autumn. At least three theatrical releases slated for this year are from iconic franchises that have, historically, been box office gold. Management also recently raised its estimate of the annual cost savings it thinks it can achieve. Even the proxy battle could be a positive, if Disney embraces some of the better suggestions that activist investors are proposing.
Image source: Disney.
Disney whirl
The entertainment giant is also posting record revenue results. Pair those with its ugly stock chart over the last 35 months, and you see the shares trading at their lowest revenue multiple in years. The P/E ratio isn't as attractive, but that's being held back by losses at Disney+ and other inefficiencies that the bellwether media company is actively working to correct.
The stock trades for 22 times this fiscal year's projected earnings and 18 times next year's consensus earnings estimate. Those aren't quite the "screaming bargain" valuations that value investors crave, but Wall Street estimates for the company are inching higher, and in recent quarters, Disney has gotten back to consistently beating expectations.
The market isn't applauding Disney's recent moves. Its November launch of ESPN Bet -- which saw Disney partnering with Penn Entertainment (PENN +1.44%) to roll out an online sportsbook -- was brilliant. That's a new revenue stream for Disney, and it's getting someone else to do the paddling. Chatter about Disney either unloading non-core assets or finding strategic partners to take minority stakes in some of its media networks should help turn market sentiment around.
Expectations are low this year. The analysts' consensus is that revenue will climb by less than 4% this fiscal year -- a low bar if the economy plays nice. The 14% increase on the bottom line that the market is modeling also seems low, given the rapidly improving financials for Disney's direct-to-consumer streaming operations.
It won't take much to awaken this giant. A hit movie here. A surprisingly robust report on theme park attendance there. A shower of pixie dust that ends with a promising divestiture or partnership that no one saw coming. There are a lot of ways for Disney to keep January's gains going. Disney shares are depressed because the market isn't impressed. Reshaping investor perspective is a tall order, but you're also talking about a master storyteller at work here, and I think Disney could change the narrative. I'll see you at the other end of this year to see if I was right.
