ForexProfitZone - Disney | Fundamental Analysis

Disney | Fundamental Analysis

Monday April 19, 2021

There is no doubt in anyone's mind that the past year has been exceptionally transformational for Walt Disney Company. There aren't many similarly diversified businesses that have been so badly affected by the pandemic these days. But it is safe to say that the company has weathered the crisis and is preparing for a full-blown recovery. Check below for full analysis, ENTRY's and TP's.

Management's skill in maintaining the company's balance sheet and its accelerated transition to streaming services has not been ignored by many investors. Total segment operating income was down 67% year-over-year in the first quarter of fiscal 2021, which ended Jan. 2, but the stock has continued to strengthen, posting a 30% gain since the beginning of 2020.

With the upcoming opening of amusement parks, investors should be considering whether now is the right time to buy this company's stock.

A hallmark of Disney's approach is how its business interacts with consumers to strengthen the company's overall popularity. The connection of its movie business, theme parks, cruises, and now live broadcasting with consumers is unique. While many segments of the company have struggled over the past year, the company's streaming television services have done well.

According to Disney, as of Jan. 2, 2021, the company had more than 146 million paid subscribers to Disney+, ESPN+, and Hulu streaming television services. The company has since announced that Disney+ has passed the 100 million subscriber mark. The company now expects peak operating losses for the new Disney+ service to occur this year, and projects profitability in the fiscal year 2024. The popularity of the service has already given the company confidence that prices will be raised for the first time since its inception.

It has also led to a reorganization of the company's performance reporting. Disney has split its segments into just two parts: the media and entertainment distribution segment and the parks, experiences, and products segment. Recovery from the pandemic consequences in travel, sports, and entertainment will benefit both groups of Disney's business on several fronts.

It should be noted that Disney has not just sat back and waited for consumers to resume business. One example is the Disneyland theme park in California. Even when the park was still closed to visitors, the company was working to expand it. Soon, on June 4, the park will open a new "Avengers" themed area with a Spider-Man attraction, roaming superheroes, and a new food cart. It is another example of the unique interaction between Disney movies, theme parks, and related merchandise.

The media segment recently signed a new long-term agreement with the National Football League, further enhancing the appeal of its ESPN and ABC networks as well as its ESPN+ streaming service. In February, the company also brought Disney+ to international markets with its Star service brand.

As you know, any decision to buy a stock must include an analysis of its current valuation. But Disney is such an iconic brand that its value should also be considered, even if it is difficult to quantify. With segments of the company's business in a state of transformation and recovery, traditional valuation metrics are also difficult to apply at this time.

Nevertheless, the drop in sales as a result of the lockdown and park closures should return to previous levels, and further growth looks likely. Total revenues are down 23% from prior years and 22% in the last two fiscal quarters, respectively.

If Disney had simply recovered lost revenue, its price/sales (P/S) ratio would have fallen by more than 20%. Given that the stock is already about 7% above its recent highs, that would put the P/S below 4.5. It is a reasonable level given the unique business, the strong growth in streaming offerings, and the investments the company continues to make to grow the business. Given all of the above, long-term investors should feel comfortable buying this blue-chip stock at the current price.

Disney | Fundamental Analysis