Regardless of the negative news regarding Walt Disney Co (NYSE: DIS), we consider it as one of the best opportunities for investors in the entertainment industry.
Although several competitors have attained robust growth, the exceptional financial metrics of Walt Disney have only garnered little attention. The prevailing bearish sentiment provides a window to acquire its shares at a low price and gain more than 20 percent from the returns of the stock in the next year.
The more than 11 percent decline on a year-to-date basis has little to do with the company’s earnings. We recommend that you purchase the beaten-down stock of the entertainment company.
Walt Disney has exceeded the forecasts of analysts in 3 out of the last 4 quarters. Moreover, the latest quarter reflected that the media titan is surpassing the top and bottom line estimates, aided by solid studio financial results.
The company gained $1.62 per share or $2.6 billion, up by 12 percent or $114 million on a year-over-year basis. Furthermore, there was also a 40 percent growth in the sales of Studio Entertainment, Media Networks, and Parks and Resorts.
We expect that the fourth quarter of the fiscal year will show weaker results. The media giant is anticipated to register $1.19 earnings per share on $13.71 billion revenue.
At present, Walt Disney already owns a remarkable content library. However, subscription pricing is where Disney must put some work on, especially for ESPN.
ESPN has definitely not performed at levels that it would like to, but investors can anticipate the management to fix this with direct-to-consumer services.
Walt Disney projects that its parks division will attain growth by the following year.
Meanwhile, the company’s move to slash 250 positions at its consumer products and interactive segment is not significant considering that Disney has around 180,000 employees. The fiscal year 2015 witnessed the media and entertainment giant to report a record net income of $8.3 billion.
We believe that Walt Disney is still one of the most effectively managed companies in terms of financial matters. The firm’s $20.4 billion debt is lower by 20 percent in comparison to its market value.
Furthermore, the return on equity and operating margins are better than its major rivals, while its generation of annual free cash flow is strong.
Regardless of the solid financial position and sound fundamentals, the DIS stock is trading at 9.6 times EV/EBITDA—in line with competitors. As for the dividend of the company, its yield of 1.53 percent is improved by strong income and better prospects for growth.
The average 12-month price targets of 27 analysts covering the stock of the entertainment giant stands at $113, reflecting a 21.5 percent upside potential.
Considering all these factors, we would certainly recommend a Buy position on the DIS stock.