Is Disney Stock a Buy Near its 10yrs Low?

Summary

The video discusses Disney's stock performance, noting its 37% decline over five years and recent 26% dip from its 52-week high. Despite improvements in earnings and free cash flow, the stock is down, trading at a low multiple. The presenter explores whether this presents a buying opportunity, considering the company's business model, direct consumer growth, and balance sheet challenges. Ultimately, they find better investment opportunities elsewhere.

Takeaways

• 📉 Disney's stock has decreased by 37% over the last 5 years, leading to a lot of discussion and negative feedback among investors.
• 📈 Despite being down, Disney's stock rose by 54% previously, and the recent drop is 26% from its 52-week high, prompting questions about whether it's a buying opportunity.
• 🎢 Disney's business model includes revenue from sports (ESPN), entertainment, and experiences like Disneyland and Disney World, with the latter being a segment that some investors dislike due to low margins but high customer loyalty.
• 💸 An article cited in the script reveals that 45% of parents take on debt to afford Disney vacations, highlighting the strong demand for Disney's theme parks and cruises.
• 🏰 Disney is investing heavily in its theme park business, with plans to increase investments to $60 billion in 2023, despite it not being the most profitable segment.
• 📊 Disney's last earnings report showed that they beat expectations on EPS but slightly missed on revenue, with guidance for revenue growth being lowered but still on track for 2024.
• 💰 The company is expected to generate around $8 billion in free cash flow in fiscal year 2024, a significant increase from the $1 billion in 2022 and close to the $5 billion in 2023.
• 📈 Disney Plus is showing signs of improvement, with an increase in subscribers and profitability, marking the first time the direct-to-consumer division has made an operating profit.
• 💳 Disney's balance sheet is not in the best shape, with a significant amount of debt relative to its cash position, but the company is generating enough free cash flow to potentially pay off some debt.
• 📉 The stock's current trading price is influenced by a market multiple that has decreased from 25 times earnings to 17.5 times, which is considered low for a legacy brand like Disney.
• 🤔 The script suggests that while Disney may not be a 'buy' for the content creator due to better opportunities elsewhere, it could be considered at a price not exceeding the 52-week low of around $83 per share.

Q & A

Why is Disney considered one of the most hated stocks in the stock market?

The script mentions that Disney is down 37% over the last 5 years, which has led to a lot of negative feedback and comments, making it one of the most hated stocks.

What was the author's stance on Disney last year?

The author was bullish on Disney last year, and the stock went up by 54%.

How much has Disney's stock price fallen from its 52-week high?

Disney's stock price has fallen 26% from its 52-week high.

What is Disney's business model according to the script?

Disney's business model includes making money from sports like ESPN, entertainment, and experiences such as Disneyland, Disney World, cruise lines, and other businesses.

Why do some people consider Disney's theme parks business a 'hated segment' of its business model?

The theme parks business is considered a 'hated segment' because it has low margins and high capital expenditures, which some investors find unattractive.

What percentage of parents take on debt for Disney vacations according to the article mentioned in the script?

According to the article mentioned, 45% of parents take on debt to afford Disney vacations.

What was Disney's financial performance in their last earnings report?

Disney beat estimates on EPS with $1.21 versus $1.10, slightly missed on Revenue, and lowered guidance a bit for Revenue growth, but overall, things are on track for 2024.

What is Disney's projected free cash flow for fiscal year 2024?

Disney is projected to generate around $8 billion in free cash flow for fiscal year 2024.

How has Disney Plus performed in terms of subscriber growth and profitability?

Disney Plus has improved, growing from 6.3 million to 8 million subscribers domestically, and for the first time, the direct-to-consumer business made a profit of $47 million in operating income.

What is Disney's current balance sheet situation?

Disney's balance sheet is not in good shape, with around $6.6 billion in cash and cash equivalents and total debt close to $60 billion.

What is the current price-to-earnings (P/E) ratio for Disney, and how does it compare historically?

Disney's current P/E ratio is 17.5, which is low compared to historical levels of 20 to 25 times earnings.

What is the author's opinion on whether Disney stock is a buy at the current price?

The author believes that Disney is not a buy at the current price, as they find better opportunities in the market, but suggests that a price around the 52-week low of $83 per share would be fair.

Outlines

00:00

📉 Disney's Stock Performance and Business Model Analysis

The video script discusses the contentious nature of Disney's stock, which has seen a significant drop of 37% over the last five years. Despite being a 'hated' stock, the speaker was previously bullish on Disney, which experienced a surge of 54% but has since declined by 26% from its 52-week high. The speaker aims to assess whether Disney presents a 'generational buying opportunity' at its current levels, similar to 2014. The script outlines Disney's diverse business model, which includes sports (ESPN), entertainment, and experiences (Disneyland, Disney World, cruise lines). It highlights the controversial aspect of Disney's theme parks, which are considered low margin and high capital but are loved by consumers, with 45% of parents reportedly taking on debt for Disney vacations. The script mentions Disney's increased investment in theme parks for 2023, aiming for a $60 billion investment. The company's recent earnings report is reviewed, noting a beat on EPS and a slight miss on revenue, with expectations of generating around $8 billion in free cash flow by the fiscal year 2024. The script also touches on the company's past cash flow performance, the impact of new leadership, and the expected growth by 2026.

05:01

💹 Evaluating Disney's Stock Potential and Market Position

This paragraph delves into Disney's current market valuation, noting that the stock is trading at a historically low multiple of 17.5 times earnings, compared to its usual range of 20 to 25 times. The speaker speculates on the reasons for Disney's stock decline, despite the company's improving financials and outlook. The script provides an analysis of Disney's potential earnings growth, suggesting that even with optimistic forecasts, the stock's multiple has overreacted and is now correcting itself. The speaker estimates potential returns based on different earnings per share (EPS) growth scenarios and market multiples, concluding that while the upside exists, it may not meet the personal benchmark for a 'double' in the next five years. The speaker compares Disney's valuation to other opportunities in the market, such as Visa, and suggests that Disney may not be the most attractive investment at its current price. The speaker's personal view is that Disney is not a buy unless it is at or below its 52-week low, around $83 per share, considering other market opportunities.

Keywords

💡Disney

Disney is a multinational entertainment and media conglomerate known for its theme parks, movies, and television shows. In the video, Disney is discussed as a company experiencing significant stock market fluctuations, with the speaker analyzing its financial performance and potential as an investment.

💡Stock Market

The stock market is a platform where shares of publicly traded companies are issued and traded. The video mentions Disney and PayPal as stocks that receive a lot of attention and commentary, particularly regarding Disney's performance over the past five years.

💡Business Model

A business model describes the rationale of how a company creates, delivers, and captures value. The script refers to Disney's diversified business model, which includes sports (ESPN), entertainment, and experiences like theme parks and cruise lines.

💡Free Cash Flow (FCF)

Free cash flow is the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. The video discusses Disney's FCF growth, indicating its financial health and ability to generate cash, which is crucial for paying dividends, making investments, and reducing debt.

💡Disney Plus

Disney Plus is a streaming service offered by Disney. The script mentions improvements in Disney Plus's subscriber growth and its first-time profitability, which is significant for the company's direct-to-consumer strategy.

💡Generational Buying Opportunity

A generational buying opportunity refers to a situation where an asset, such as a stock, is undervalued and presents a chance to buy at a low price with the expectation of significant future gains. The video questions whether Disney's current stock price presents such an opportunity.

💡Value Trap

A value trap is a situation where a stock appears to be undervalued but has hidden fundamental issues that may prevent it from increasing in price. The script raises the question of whether Disney might be a value trap, suggesting that its current low price might not necessarily indicate a good investment.

💡Multiple

In finance, a multiple is used to determine the value of a company by comparing it to its earnings, sales, or book value. The video discusses Disney's current price-to-earnings (P/E) multiple, which is lower than its historical average, indicating that the stock may be undervalued.

💡Debt

Debt refers to an obligation that an entity owes to another entity. The script mentions Disney's significant debt load relative to its cash position, which is a concern for investors evaluating the company's financial stability.

💡NBA Rights

NBA rights refer to the broadcasting rights for National Basketball Association games. The video mentions a shift in these rights from Warner Brothers Discovery to Disney, which won the rights for ESPN, indicating a strategic move in sports broadcasting.

💡Direct Consumer

Direct consumer refers to a business model where products or services are sold directly to consumers without intermediaries. The script discusses Disney's shift towards a direct-to-consumer model, particularly with Disney Plus, which is now profitable and growing.

Highlights

Disney's stock is considered one of the most hated in the market, alongside PayPal.

Disney's stock has declined by 37% over the last 5 years.

The speaker was previously bullish on Disney, which saw a 54% increase but is now down 26% from its 52-week high.

There is a debate on whether Disney's current price represents a generational buying opportunity or if it is overpriced or a value trap.

Disney's business model includes revenue from sports, entertainment, and experiences like Disneyland and Disney Cruise Line.

Despite being a low-margin, high-cap segment, Disney's theme parks are considered to have a competitive advantage.

An article cited indicates that 45% of parents take on debt to afford Disney vacations.

Disney is investing heavily in its theme park business, with $60 billion allocated for investments in 2023.

Disney's last earnings report showed a beat on EPS and a slight miss on revenue, with lowered guidance for revenue growth.

Free cash flow for Disney is expected to reach around $8 billion in fiscal year 2024, a significant increase from previous years.

Disney Plus has shown improvement, growing its subscriber base while becoming profitable for the first time.

The direct-to-consumer division of Disney has made an operating profit for the first time, a significant shift from previous losses.

Disney's balance sheet is not strong, with a significant amount of debt relative to its cash position.

Despite generating free cash flow, Disney's stock continues to decline, prompting an analysis of the reasons behind it.

Disney's stock is trading at a low multiple of 17.5 times earnings, which is considered low for a legacy brand.

Analysts are optimistic about Disney's future earnings, predicting significant growth from 2023 to 2032.

Based on the current situation and market conditions, the speaker does not consider Disney a buy at its current price.

The speaker suggests that there may be better opportunities in the market compared to investing in Disney at this time.

The speaker would consider buying Disney at its 52-week low, around $83 per share, if it had to invest in the stock.

Transcripts

Disney is one of the most hated stocks

in the stock market Disney and PayPal

this is I always get crazy comments and

crazy feedback under my expost or under

my YouTube videos whenever I talk about

Disney or PayPal but Disney is down

37% Over The Last 5 Years absolutely

insane and a lot of you have been asking

me for an update I was bullish on it

last year the stock went up a lot I W

54% and now it's coming down it's down

26% from from the 52 we high and just a

lot of you are asking me is this some

kind of a generational buying

opportunity sitting at 2014 kind of

levels at a 10 years same price or maybe

it's just a little bit overpriced maybe

it's a value trap and maybe we should

wait on it this is what I'm going to

assess now most of you are familiar with

Disney's business model so I'm not going

to go deep into it they make money from

sports ESPN and others they make money

from entertainment and they also make

money from experiences like Disneyland

Disney World the love of of you know

team parks and other stuff Disney Cruise

Line and many different businesses that

they have and I just wanted to highlight

something as this is a very hated uh I

should say hated segment of Disney's

business model because it's low margin

High cap x a lot of people hate on it

but I think they have some kind of a

competitive Advantage around this space

and people love going there and this is

an article I found on X which says 45%

of parents take on debt for Disney

vacations they take on that just to take

their kids or they they want to go to

Disney to me I found it very interesting

to Disney World and Disney cruise lines

and it's a very interesting thing and

Disney is doubling down on this in 2023

they increased it to $60 billion in

terms of Team Park Investments and it's

not the best place to invest but they do

make money on it it's not the best at

all but they do make money and they have

more openings in 2024 and many different

things so I just wanted to talk about

this a little bit but for Disney in

general the last earnings report was

actually pretty good they did beat on

EPS $121 versus $110 they did very very

good they also a slight Miss on Revenue

but nothing too crazy they did somehow

lower guidance a little bit for Revenue

growth but in terms of everything else

for 2024 it's going on track they're

going to generate around $8 billion in

free cash flow in fiscal year 2024 now I

have to remind you that Disney in 2022

was making a billion in free cash flow

then with the change in leadership and

different things they made pretty close

to 5 billion and now they're back pretty

close to 8 billion dollar in guidance

for 2024 and the stock keeps going down

before that Disney was a cash generating

machine they used to make 8.4 even $9.8

billion in one year so they did generate

a lot of cash flow and this hasn't been

the case recently but the new CEO came

man which was the old CEO and he's

changing things around and it's working

and the analy expect up to 9.6 billion

or $9.9 billion by 2026 if they ever get

there but this is massive massive free

cash flow growth and things are

improving things are heading on track

everything is going fine but the stock

keeps going down in terms of Disney plus

Disney plus is also improving a little

bit it's not Zu best of course but it

did improve q1 on Q2 they did grow a

little bit that 6.3 million 8 million

total domestically not bad at all of

course hot star and India I believe it's

still suffering it's still going down

and they excluded it from the Disney

core which they only have you know the

Us and other places and this is what's

happening with Disney Plus in terms of

direct consumer in general this is the

first time ever they actually made a

profit it's only 47 million in operating

income but this is a massive improvement

from losing 600 million to making 47

million in operating income and imagine

how much higher free cash flow and how

much higher margins in general are going

to be with direct to Consumer finally

becoming profitable and it's not only

becoming profitable but it's also

growing so Disney is getting more people

to sign up and more subscribers while

actually being profitable and me this is

sometimes in order to get you know

profitability you have to Subs to

sacrifice some subscribers kind of like

Warner Brothers Discovery was trying to

do which by the way they lost NBA rights

and Amazon and Disney for ESPN and other

they won the NBA rights but WD lost it

but direct consumer is improving you

know free cash FL conversion is

improving everything is heading in the

right direction and the stock is going

down in terms of the balance sheet it's

not it's not a good balance sheet at all

it's one of the worst balance sheet

you'll see they have around 6.6 billion

in cash and cash equivalent uh total

debt in terms of borrowings here as you

could see is $39. half billion dollar

and then they have the third income tax

is 6.8 billion and 12 1 billion of other

long-term liabilities so in total it's

pretty close to I would say pretty close

to $60 billion 58 or 60 billion dollar

in terms of um you know total debt for a

$6 billion cash position that's a lot of

debt on a relative basis but Disney is

finally generating free cash flow around

8 billion and it's increasing they do

have a dividend but it's small so I mean

they can also pay off some debt in the

future so things are heading in the

right direction but Disney is going down

and I'm going to try to find the reason

why okay now if you look at the multiple

of Disney it's now sitting at 17 and a

half times earnings this is insane for a

legacy brand like Disney but we've seen

it once and once again with companies

like Disney Nike and many other Legacy

brands that people love them and all

these things they're trading at crazy

low multiples but Disney is trading 17

and a half times earnings uh this is low

on a historical basis it traded between

20 to 25 times now it's sitting at 17

and2 times so this is very very low but

whenever Disney did go up it was trading

as high as 25 times earnings so even

though Disney if it does everything

perfect and even those things are

improving the market got ahead of itself

and it got overvalued at 25 times

earnings and it just couldn't sustain

the multiple the market has overreacted

and the multiple is now coming down so

it went from 25 times just in March with

the estimates and everything now it's

seeing at 17 and a half times so this is

a pretty big Improvement M and it's hard

to calculate the returns of Disney you

know because we don't really know how

much earnings per share they're going to

grow and we don't know the multiples

that they going to trade at but I'm just

going to do a rough estimate to give you

a you know some common sense analysis on

if I believe Disney stock is a buy here

or not and if I look at the aist

estimate they're extremely optimistic I

mean from a129 in 2023 to $7 in32 this

is more like it's 7x or 6X in terms of

grow for earnings per share so anything

ping on anything beyond that would be

insane maybe they can deliver anything

beyond that but I wouldn't bet on it so

if I'm taking from something like 732

for example for uh Disney and I take 732

and I time it by 20 times earnings the

mean is 20 to 21 times now it's sitting

at 17 and A2 so taking let's say 20

times earnings and we time it by 20

times we're getting $146 per share so

even though we're having this uh very

bullish case scenario from a136 to $733

to we're still only getting $146 per

share at 20 times earnings by 2028 the

stock right now is trading at $89 if you

divide it by $89 you're getting 64% on

the upside over the next 5 years this is

not bad at all but it doesn't really

Satisfy My Double over the next five

years for Disney so for me personally if

I look at Disney I look at the brand it

could trade more than 20 times a lot of

good things could happen but for me

personally relative to other

opportunities here Disney is not a buy I

mean it could be a buy and you it could

go up and it could do amazing things but

I'm just finding better opportunities

the market like you know stocks like

Visa Visa is trading at 24 times and

then other things are much better

opportunities a lot of stocks are coming

down the big seven are coming down so I

wouldn't really be in rush to go and buy

Disney but if I had to buy Disney I

wouldn't pay more than a 52 week low

around 8082 $83 per share I think that

would be a very fair number for Disney

but anything beyond that on a relative

basis to other opportunities Disney to

me doesn't make sense and even though I

could go a little bit higher if things

could improve much much more but I think

there's just better opportunities uh in

the market this is what I think of

Disney not Financial advice just my

opinion so thank you again for watching

uh I hope you enjoyed it if you did

please press the like button and maybe

consider subscribing so I'll talk to you

in another video