S&P 500   5,123.41
DOW   37,983.24
QQQ   438.27
5 Semiconductor Giants: Navigating the Recent Pullback
2 Stocks to Buy on The Dip: One a Value, the Other High-Yielding
Breakout Alert: Coinbase's Consolidation Is About To End
3 Key Stocks Helping to Drive the EV Race
Closing prices for crude oil, gold and other commodities
You Can Follow BlackRock’s Market View for Your Money
JPMorgan Chase Falls 5% as Consumer Cracking Begins to Show
S&P 500   5,123.41
DOW   37,983.24
QQQ   438.27
5 Semiconductor Giants: Navigating the Recent Pullback
2 Stocks to Buy on The Dip: One a Value, the Other High-Yielding
Breakout Alert: Coinbase's Consolidation Is About To End
3 Key Stocks Helping to Drive the EV Race
Closing prices for crude oil, gold and other commodities
You Can Follow BlackRock’s Market View for Your Money
JPMorgan Chase Falls 5% as Consumer Cracking Begins to Show
S&P 500   5,123.41
DOW   37,983.24
QQQ   438.27
5 Semiconductor Giants: Navigating the Recent Pullback
2 Stocks to Buy on The Dip: One a Value, the Other High-Yielding
Breakout Alert: Coinbase's Consolidation Is About To End
3 Key Stocks Helping to Drive the EV Race
Closing prices for crude oil, gold and other commodities
You Can Follow BlackRock’s Market View for Your Money
JPMorgan Chase Falls 5% as Consumer Cracking Begins to Show
S&P 500   5,123.41
DOW   37,983.24
QQQ   438.27
5 Semiconductor Giants: Navigating the Recent Pullback
2 Stocks to Buy on The Dip: One a Value, the Other High-Yielding
Breakout Alert: Coinbase's Consolidation Is About To End
3 Key Stocks Helping to Drive the EV Race
Closing prices for crude oil, gold and other commodities
You Can Follow BlackRock’s Market View for Your Money
JPMorgan Chase Falls 5% as Consumer Cracking Begins to Show

Disney Stock is Ridiculously Cheap Now That the Worst is Past

Disney stock price

Key Points

  • Disney stock has been beaten down on overly bearish assumptions of where the company's financials could be headed, wrongly so.
  • Management could soon be praised for the massive investments they made in 2019, the ones that wrecked margins but are now expanding them like never before.
  • Wall Street analysts see higher upside ahead, but that's only the tip of the iceberg.
  • 5 stocks we like better than Target

With the new business cycle coming to the United States stock market, specific stocks will likely attract most of the attention from investors looking for a value bargain to multiply their wealth in the coming years. Hopefully, after the recent rallies in the stock indices, which are hitting new all-time highs, you’ve taken some profit and are liquid enough to hunt for the next opportunity.

For reasons that will soon become clear, stocks like Walt Disney NYSE: DIS offer you skewed – in your favor – risk to reward scale today. After a dismal performance from 2021 to 2023, the stock became an acquisition target when it sat at only 38% of its all-time high price of $203 a share. The stock follows the rest of the market to bring you a new yearly high.

Some analysts in Wall Street see the writing on the wall for Disney stock. They are laying out their bullish opinions to reflect just how much upside there could be shortly for this company; this is especially the case when you dig deeper into what caused the stock to crash, as well as what is recently causing it to recover.

The Worst in the Rearview Mirror for Disney 

That is where everything negative to be said about the company is now, in the rearview mirror. Starting with a dividend cut – to zero – during the peak months of the COVID-19 pandemic, Disney spooked some investors away from it. But even more than that, management decided to burn through piles of cash into ventures that didn’t necessarily play out.

Now, the view is different. Disney management wants to cut costs by as much as $2 billion to return the company to its previous profitability and former glory. Amazingly, the company generated net income margins up to 20% before the pandemic, which is multiple times higher than the metric today.


Looking at the 2015 to 2020 period, you will notice that Disney generated between 15% and 20% in net income margins, accompanied by double-digit returns on invested capital (ROIC) rates. Because ROIC is the stuff that drives stock prices in the long term, Disney was a sure bet as far as compounding your wealth.

The picture completely changes when you expand this timeframe to the post-COVID era, 2021, to the present, which shows a significantly less profitable business with below 5% net income margins and low single-digit ROIC rates. This entirely different company is headed for disaster, or at least that’s what the bears want you to believe.

If you want the truth, Disney is only one of the few consumer discretionary stocks punished for reinvesting vast sums of cash, equaling nearly $15 billion in 2019 and a steady outflow of investment of $4 to $5 billion after that. All of this investment effort went into one project: Streaming.

Most investors didn’t realize how long this new branch of Disney would take to pay off, a reality that dragged margins lower as costs to set up this business grew more prominent. However, that is all in the past, as management has closed its recent financial quarter with some positive remarks for the future.

Disney a Brighter Future

According to its quarterly earnings press release, Disney grew its earnings per share by nearly 50%, all while being on track to reduce costs by as much as $7.5 billion this year. On a free cash flow basis (operating cash flow minus capital expenditures), an expected $8 billion served to fuel stock buybacks and dividend reinstatement.

Now that the Federal Reserve (the Fed) is set to cut interest rates later this year, stocks exposed to the Consumer Discretionary Select Sector SPDR Fund NYSEARCA: XLY could see a catch-up to the broader S&P 500, an index the sector underperformed by as much as 4% in the past quarter.

Across the world, another stock buying back as much as $35 billion in its stock is Alibaba Group NYSE: BABA, solely due to management believing the stock to be significantly cheaper than its actual value.

Also believing the stock to be a ridiculous bargain today, Disney management announced a buyback program of up to $3 billion, 1.5% of the company’s market capitalization.

Who else thinks the stock is cheaper than where it should be? Analysts at The Goldman Sachs Group Inc. NYSE: GS and Wells Fargo NYSE: WFC see a respective price target of $120 and $128 each, calling for an equaling 8% and 15% upside from today’s prices.

Can Disney return to making its 15% to 20% net margins? It would be interesting to see where the stock goes. If management can pull off a 10x in this metric, could the stock also 10x?

Should you invest $1,000 in Target right now?

Before you consider Target, 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 Target wasn't on the list.

While Target currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

A Guide To High-Short-Interest Stocks Cover

MarketBeat's analysts have just released their top five short plays for April 2024. Learn which stocks have the most short interest and how to trade them. Click the link below to see which companies made the list.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Consumer Discretionary Select Sector SPDR Fund (XLY)N/A$177.11-1.6%0.76%N/AHold$0.07
Walt Disney (DIS)
4.4922 of 5 stars
$114.07-2.6%0.26%70.41Moderate Buy$124.54
Alibaba Group (BABA)
4.1327 of 5 stars
$71.30-4.7%1.37%13.15Moderate Buy$112.91
Wells Fargo & Company (WFC)
4.485 of 5 stars
$56.51-0.3%2.48%11.72Hold$58.37
The Goldman Sachs Group (GS)
4.5458 of 5 stars
$389.44-2.0%2.82%17.07Moderate Buy$423.05
Target (TGT)
4.8071 of 5 stars
$166.12-3.0%2.65%18.60Moderate Buy$182.04
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


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