January 27, 2023

Amid a sudden change at the helm and challenged by losses in its streaming business, Disney (DIS) has a lot of short-term uncertainties to deal with. Let’s discuss why the stock is best avoided right now. Read moreā€¦.



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The media and entertainment giant The Walt Disney Company (DIS) was seemingly complete three weeks ago when the company’s board of directors decided on Sunday, November 20, to let go of Bob Chapek as CEO to return of his predecessor, Robert A. Igerto run the business with immediate effect.

With this move, DIS has effectively replaced Mr. Iger’s chosen successor with Mr. Iger himself. After leading the company for 15 years, from 2005 to 2020, he has been given two years to once again look for a successor and steer the company on the right track during a crucial period in the company’s 99-year history. company.

One of Mr. Iger’s priorities would be to close the gaps in DIS’s direct-to-consumer division, which is rapidly losing money.

As part of its overhaul strategy, DIS is expected to strengthen its operational control of HULU through the acquisition of Comcast Corporation’s (CMCSA) the remaining 33% stake in the streaming services. In a further push to profitability, on December 8, DIS has officially launched the Disney+ supported tier for $7.99 per month, $3 per month less than the ad-free version.

Despite DIS’ efforts to reposition itself in the streaming landscape by making its services profitable and accessible, macroeconomic headwinds threaten to dampen its near-term outlook. Amid increased competition from other streaming service providers, rising interest rates and fears of a looming economic slowdown, weakening demand and declining discretionary spending could hamper DIS’s recovery plans.

These are the factors that can affect the performance of DIS in the short term.

Unsatisfactory financial performance

For the fourth quarter of its fiscal year ending October 1, 2022, DIS reported net income of $254 million, down 0.8% year-over-year. During the same period, the company’s earnings per share were flat at $0.09. Total current assets were $29.10 billion as of October 1, 2022, compared to $33.66 billion as of October 2, 2021.

Bad profitability

DIS is 12 months behind gross profit margin of 34.24% is 32% lower than the industry average of 50.32%. The company’s trailing 12-month EBITDA and net profit margins of 14.5% and 3.8% are 23.5% and 15.7% lower than industry averages of 18.95% and 4.51%, respectively.

In terms of underlying 12-month ROCE, ROTC and ROTA, DIS also underperforms industry averages of 6.18%, 4.13% and 2.30% at 43.7%, 35.6% and 32.8% respectively %.

Bearishness in stock price action

Shares of DIS are currently trading below the 50-day and 200-day moving averages of $97.54 and $109.95, respectively, indicating a bearish trend. The stock is down 40.4% year-to-date to close out the last trading session at $93.38.

Stretched appreciation

Despite the downward price momentum, the stock still trades at a premium compared to its peers. In terms of forward P/E, DIS is currently trading at 22.33x, 52.9% higher than the industry average of 14.61x. The forward EV/Sales multiple of 2.46 is 32.8% higher than the industry average of 1.85, while the forward EV/EBITDA multiple of 14.27 is 74.3% higher than the industry average of 8.19.

Also, the stock’s price/sales multiple of 1.87 compares unfavorably with the industry average of 1.23.

POWR ratings reflect weakness

DIS has an overall D rating, which equates to Selling on Our Own POWR ratings system. The POWR ratings are calculated based on 118 different factors, with each factor optimally weighted.

Our proprietary rating system also evaluates each stock based on eight different categories. DIS is also rated D for value and quality, due to its strained valuation and lower profitability compared to its peers.

DIS is number 12 out of 16 stocks in the Entertainment – Media Producers industry.

In addition to what has been discussed above, additional assessments for DIS’ growth, stability, momentum, and sentiment can be found here.

It boils down

While DIS’s size, history and global appeal make it well positioned to continue to perform over the long term, the near-term outlook looks bleak due to macroeconomic turbulence.

Analysts expect the company’s earnings per share to fall 24.5% year-over-year for the fiscal first quarter to $0.80. In addition, it has missed consensus earnings per share estimates in two of the last four quarters.

Furthermore, given its poor profit margins and high valuation, it would be prudent to avoid the stock now.

How does The Walt Disney Company (DIS) compare to its peers?

DIS has an overall POWR rating of D, which equates to a sales rating. Therefore, you might consider looking at its industry peer, AMC Networks Inc. (AMCX), which has a B rating (Buy).


DIS shares rose $0.30 (+0.32%) in premarket trading on Monday. Year-to-date, DIS is down -39.71%, versus an increase of -16.24% in the benchmark S&P 500 index over the same period.


About the author: Santanu Roy

Fascinated by the traditional and evolving factors that influence investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to moving into investment research, he was a process officer at Cognizant. With a master’s degree in business administration and a fundamental approach to analyzing companies, he aims to help private investors identify the best long-term investment opportunities.

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