Shares of The Walt Disney Company (NYSE: DIS) have taken investors on a less magical ride of late. The stock is up 13% in 2024, but it’s also down 17% from its 52-week high in March — and well below the heights it reached in early 2021.
While this type of volatility can be frustrating, it can also be an opportunity to buy shares of a great company at a discount. Here are five reasons why Disney stock could be a screaming buy right now.
1. Solid fundamentals with upside potential for earnings
The recent weakness in Disney shares goes back to its first-quarter earnings (for the period ending March 31), highlighted by some mixed results and subdued expectations. Earnings per share (EPS) exceeded expectations, but annual revenue growth of 1.3% was slightly below expectations.
That said, it’s important to consider the big picture, which offers plenty of reasons for investors to be optimistic. The sales weakness in the first quarter is related to timing effects. Disney had no major theatrical releases this quarter, which negatively impacted revenue in the entertainment segment.
The bigger story should be the momentum in streaming services. Disney added 6 million core Disney+ subscribers at the start of the year, including a 17% increase from the US and Canada. The trends helped the direct-to-consumer business finally turn a profit for the first time.
That milestone has implications for profitability, which continues to climb. Disney reiterated its full-year free cash flow target of $8 billion, a notable shift from $4.9 billion in fiscal 2023 and $1 billion in 2022. Overall, this is a case where, despite the stock selloff, the financial outlook is improving.
2. A surprise blockbuster
A big win for Disney is the impressive box office figures of the latest theatrical release, Inside Out 2The animated film has grossed $724 million in just two weeks and is on track to become the first film of 2024 to gross $1 billion.
The hope is that upcoming Disney releases, including Deadpool vs. Wolverine And Alien: Romuluswill capture some of the same box office magic. Investors can look forward to seeing the impact of these films reflected in company results later this year.
3. Streaming bundles can create value
Another catalyst to watch for in Disney stock is the company’s plan to rejig its streaming offerings. With several separate properties between the Disney+, Hulu and ESPN channels, the goal is to give customers more choice by expanding distribution with more bundle formats.
Disney, next Warner Bros. Discovery And FOXis launching a joint sports streaming service in the coming months, combining ESPN, TNT Sports, ABC and FOX Sports. The ability to bring in new viewers and keep existing subscribers engaged should be positive for the company’s bottom line and unlock value.
4. Expansion of theme parks to stimulate long-term growth
Perhaps the strongest part of Disney’s global empire is its Experiences segment, which includes theme parks, resorts and cruise lines, where revenue rose 10% year over year last quarter.
Disney plans to capitalize on continued demand for significant expansion, investing $60 billion over the next decade in its global properties, including new land at its Anaheim Disneyland location and DisneyWorld Resorts in Florida. The capacity-enhancing efforts are the foundation for long-term growth as part of a strategy to keep Disney a leader in entertainment.
5. A convincing valuation
Finally, the main reason I’m bullish on Disney is that I think the stock is simply undervalued. Shares trade at 21 times 2024 consensus EPS of $4.73, according to the average of Wall Street estimates.
While this forward price-to-earnings (P/E) ratio is in line with the company’s 10-year average for the multiple, the metric looks increasingly attractive through 2025, when Disney is expected to reach an EPS of $5.49 . This implies a forward P/E of 18.6 in 1 year.
Ultimately, Disney’s strengths and earnings momentum could justify a broader valuation premium from here. The upside here is the possibility that results could exceed expectations in coming quarters, serving as a catalyst for the stock.
Is Now the Time to Buy Disney Stock?
There’s a lot to like about Disney, and the stock is well-positioned to recover in my opinion. As long as economic conditions remain resilient, the market should reward the company’s renewed focus on profitable growth over time. The stock could be a good option for investors as part of a diversified portfolio.
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walt Disney and Warner Bros. Discovery on. The Motley Fool has a disclosure policy.
5 Reasons to Buy Disney Stock Right Now was originally published by The Motley Fool
