Disney Earning Push The Stock Higher?

$Walt Disney(DIS)$

The Walt Disney Company recently reported its latest quarterly results, which were released before the market opened alongside reports from Nova Nordisk and Uber. As for Disney, the stock is currently down 1.1%. While that might seem like a pullback, it was still a strong quarter overall, with some positive remarks from the earnings call. Year-over-year, Disney’s stock is up 16%, and it now has a market cap of just over $22 billion. Its forward P/E is currently 27 times.

Earning Overview

Strong Earnings Performance:

Disney’s Q1 2025 results showed a significant beat on earnings, with a 22.2% EPS surprise and a 44.3% year-over-year increase in EPS. This strong performance indicates that Disney is on track to recover and grow, boosting investor confidence.

Revenue growth of 5% and a 27% increase in income before taxes further strengthens the bullish sentiment around the stock.

Let’s dive into the numbers. Overall, the quarter was solid, with some minor misses. For example, entertainment missed expectations by 1.2%, free cash flow came in 4.6% below projections, and ESPN+ subscribers were down by 3.3%. However, earnings per share (EPS) beat by 22.2% and saw a 44.3% increase year-over-year.

Fundamental Analysis

The business is divided into three main segments: entertainment, sports, and experiences. As you can see from the breakdown, operating income from the entertainment segment is increasing, while sports remains the smallest segment. The experiences segment, primarily driven by parks, continues to be a strong performer, although it was slightly impacted by natural disasters and pre-opening expenses related to the Disney Treasure project.

CEO Bob Iger emphasized the company’s creative and financial strength during the earnings call, noting outstanding box office performance, profitability improvements in the streaming business, and advancements in ESPN’s digital strategy. He also highlighted the company’s global investments in its experience segment.

In terms of the key metrics:

• Revenue was up 5%.

• Income before taxes increased 27%.

• Total segment operating income rose by 31%.

• Diluted EPS was up 35%.

• Cash provided by operations surged 47%.

Cash Flow

The free cash flow was down by 17%, largely due to significant investments in the parks segment. Looking at Disney's subscriber base, Disney+ saw a small decrease in subscribers in the US and Canada, but international growth helped offset this. Overall, Hulu subscribers grew by 3%, and advertising revenue increased due to higher prices and improved advertising strategies.

Looking ahead, Disney anticipates modest declines in Disney+ subscribers, but expects growth in operating income for both entertainment and sports. The company also projects high single-digit EPS growth for fiscal 2024.

Growth in Streaming:

• Disney’s strategy to make streaming a bigger part of its business has been a key driver of optimism. The company continues to focus on enhancing its Disney+ and Hulu platforms, with notable progress in the DTC (direct-to-consumer) streaming business, which now has a growing subscriber base. Disney is positioning itself to compete with Netflix in the streaming space, and this transformation is seen as a major growth opportunity.

• Analysts are bullish on Disney's long-term streaming potential, especially with its focus on quality content over quantity and improved advertising revenue.

Technical Analysis

• In the first quarter of 2025, Disney reported a 44% increase in earnings, with adjusted earnings per share at $1.76, surpassing analyst expectations of $1.45.

• Analysts have set a 12-month average price target of $128.76 for Disney, indicating a potential upside of approximately 17.9% from the current price.

• In summary, Disney's stock is currently trading near its support level of $109.28, with potential resistance around $112.59. The positive earnings report and favorable analyst outlook suggest that the stock may test these resistance levels in the near future.

Risks and Challenges

Free cash flow is down 17% due to investments in the parks segment, which might cause some cautiousness. However, this is viewed as a necessary investment for long-term growth, and the market seems to view it as a temporary setback.

Subscriber churn in Disney+ (especially in the US and Canada) has slightly impacted sentiment. However, the company expects modest declines in subscribers in Q1 2025 and remains confident in its ability to sustain growth globally.

The company’s political challenges and controversies surrounding its leadership have created some headwinds, though these appear to be somewhat priced into the stock.

Valuation

Disney’s valuation metrics, particularly the P/E ratio of 27x, are higher compared to many other stocks, reflecting the market’s optimism about the company’s future growth, especially with streaming and content development. However, the high investments in parks and sports, along with some volatility in subscriber numbers, might explain the cautious approach toward free cash flow.

The price target by analysts is around $128.76, indicating a potential upside of about 17.9% from current levels. The sentiment from analysts is largely bullish, with expectations of continued growth across Disney’s various segments (streaming, entertainment, sports, and experiences).

Market sentiment

Theme Parks and Experiences:

• Disney's parks and resorts are performing well, with the experiences segment seeing a 31% increase in operating income. Even though the company faced some challenges with natural disasters and pre-opening expenses, investments in new attractions like Disney Treasure are expected to continue driving growth.

• As the global economy stabilizes and travel resumes, Disney’s theme park business could see sustained recovery, adding to positive sentiment.

Upcoming Movie Releases:

• Disney’s Marvel and Avatar franchises, along with other major upcoming movies like Fantastic Four and Avengers sequels, are expected to drive significant box office revenue. This contributes to a positive outlook for Disney's future growth, especially in the entertainment and media segments.

• With Disney films consistently performing well at the box office, this has bolstered the company's reputation as a major player in content production and distribution.

Conclusion

In summary, Disney’s market sentiment in 2025 is largely bullish. Despite some short-term challenges, such as lower free cash flow and slight subscriber loss, the long-term growth prospects driven by streaming, blockbuster films, and park investments are likely to keep investors positive about Disney’s future performance.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub