Disney: 3 Reasons To Start Backing Up The Truck

Key Points

• Disney shares are close to a ten-year low, but revenue has never been higher. 
• Analysts are calling for a strong reversal, with a 40% upside on the cards. 
• Shares are trading right around 2020's low, which could be the turning point again. 

Though it was looking for a while back in January that last year's slide was being halted, shares of Walt Disney Co NYSE: DIS have had a poor 2023. Not only are they now trading below last year's dip and right at the low of 2020's pandemic-inspired selloff, but they're also back trading at 2014 levels. 

Taking into account this week's slide, the stock is on track to deliver what will be its 21st down month out of the last 30. That's not a record that will inspire confidence, and there have been few signs of the bulls being in any shape to wrest back control so far this year. 

But this is still a $145 billion industry titan that is generating more revenue than ever before while also becoming increasingly diversified. For those of our readers who love getting in on the ground floor of a recovery rally, there are plenty of reasons to start getting excited. Here are the top three. 

Fundamentals Remain Strong 

First up is the company's internal engine, the fundamentals. It would be one thing if Disney's revenue was slipping quarter on quarter or if its earnings were consistently in the red, but the opposite is the case. July's earnings report delivered the second-highest revenue print in the company's 64-year history, second only to last December's. True, the EPS in July's report was in the red and showed a loss, but this bucked a three-year trend of profitable quarters going back to 2020. 

It's fair to say that some weakness might be expected from this anomaly, which obviously has some weight to it. But for shares to continue trading down at a pace that now has them 60% off their all-time high is hard to understand. Sure, the golden goose of growth that was its streaming business isn't quite the same, but this is a very different Disney to the one from 2014. 

The outlook has not been helped by a run of box office disappointments and reports of poor theme park traffic, but revenue is still at all-time highs. Considering the stock is close to a ten-year low, you can't help feeling like Disney is starting to feel oversold down here. 

Bullish Analysts 

In a similar vein, the team at Bank of America upgraded their rating on Disney shares last week. Analyst Jessica Reif Ehrlich and her team upped their rating to a full Buy, noting that the company's outlook into next year and beyond continues to brighten. 

In a note to clients, Ehrlich wrote that Bob Iger's return as CEO will pivot the company's attention away from restructuring efforts and instead prioritize achieving sustainable long-term growth. This strategic shift will involve overseeing the transition in linear operations, rejuvenating the core creative engine that is central to Disney, and accelerating growth within the theme park segment.

Bank of America's fresh price target of $110 will sound quite tempting, too, considering shares were trading for less than $80 during Wednesday's session. It's not that common to see a big boy like Disney offering a potential upside of 40%, which makes the entry opportunity on hand all the more exciting. 

Technicals 

In addition to feeling that the worst-case scenario has been unfairly priced into shares, investors interested in the long side also have the technicals in their favor. At $79, Disney shares are trading right around the low point of March 2020's selloff. 

This is where the bulls stepped back in and said "no more," and so this level will be watched closely in the coming sessions to see if it holds once again. If it's starting to look like it will, that creates a clear and simple entry point while emergency stops can be worked in the lower $70s. At this point, the risk-reward is almost too good to miss, so watch for the selling to lose momentum and for a run of green days in the sessions ahead.