It’s safe to say that the Walt Disney Company (NYSE: DIS)
is one of the most instantly recognizable brand names in worldwide entertainment. With popular media networks, iconic theme parks, and studio entertainment operations that produce some of the most-watched movies and television franchises, adding shares of this stock seems like a no-brainer if you are interested in exposure to media and entertainment. With that said, there are some risks that cannot be ignored if you are interested in Disney stock.
With new variants of the COVID-19 virus threatening to slow down the economic reopening, increasing competition in the streaming television space, and the possibility of a decrease in consumer spending on the horizon, many investors are wondering if Disney
stock is worth the price of admission at this time. While every investment comes with its unique risk factors, there’s a good chance that this blue-chip name is worth adding at current price levels. Here are a few reasons that support adding shares of Disney stock at this time. Impressive Pivot to Direct-to-Consumer Business
Disney couldn’t have launched its direct-to-consumer business at a better time, as the company rolled out its Disney+ streaming service back in November of 2019 prior to the pandemic. The platform has gained a lot of traction since it came to market and is a big reason why investors should consider adding shares of Disney at this time. The company has pivoted towards investing heavily in direct-to-consumer content and strategically reorganized its media and entertainment businesses to support growth, which is already paying off in a big way.
Disney+, Hotstar, Hulu, and ESPN+ are all intriguing long-term growth drivers that reflect how Disney is investing to take advantage of a change in consumer preferences. There’s a lot to like about the company’s growth potential for streaming content in international markets, especially when you think about how the Disney brand is known all over the world. Also, with football season coming back soon, Disney
could see strong subscription numbers from ESPN+, which provides a key competitive advantage for the company versus Netflix, a platform that doesn’t offer broadcast sports content. Direct-to-consumer revenues increased by 57% to $4.3 billion in Q3, and Disney+ paid subscriber numbers jumped over 100% year-over-year to reach 116 million, which is confirmation that the House of Mouse might be onto something here with the recent changes. Convincing Q3 Earnings Show Signs of Good Things to Come
Another reason to consider adding shares of Disney at this time is thanks to the company’s strong Q3 earnings, which could be a sign that all of the pent-up demand for Disney’s parks and experiences business segment will translate to strong financial results over the next few quarters. Although the company definitely benefitted from weak comparisons from a year ago, the fact that Disney saw its Parks, Experiences, and Products segment return to profitability for the first time since the onset of the pandemic should give investors more confidence about the company's prospects going forward.
As previously mentioned, another highlight from the company’s latest quarter was the growth in direct-to-consumer revenues, and Disney estimates the total addressable market for its streaming services is 1.1 billion households across the globe. The bottom line here is that a massive EPS beat is always a good reason to consider adding shares of a high-quality company like Disney, and if you believe that we are nearing the end of travel restrictions and pandemic-related closures, it's hard to find a better reopening play than Disney. Valuation is Misleading
When you take a look at Disney’s fundamentals and see that the stock is trading at a whopping 287 P/E ratio, you might be thinking that the stock is extremely overvalued at this time. After all, blue-chip stocks with multiples that are similar to high-growth software stocks are not something we see every day. However, that valuation is very misleading since it reflects trailing earnings during what is likely to be the rock bottom for the history of Disney’s
business. As the pandemic ravaged the world’s economy, most of the company’s parks were forced to close, advertising buyers seriously cut back on their spending, and movie theaters were ghost towns.
Now, the company is already showing signs that those negative impacts are quickly diminishing. Look no further than the company's Q3 results for proof. The stock is also showing signs of upside from a technical standpoint, as it recently reclaimed all of the major moving averages. All of this tells us that things could be looking up for Disney shareholders, which is why the stock might just be worth the price of admission.
Before you consider The Walt Disney, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and The Walt Disney wasn't on the list.
While The Walt Disney currently has a "Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.
View The 5 Stocks Here
Companies Mentioned in This Article
Compare These Stocks
Add These Stocks to My Watchlist