Disney Stock Dives After Earnings. Here's Why

Walt Disney (DIS) stock is down nearly 10% midday Tuesday after the media and entertainment giant's revenue came up short of Wall Street's expectations for its fiscal second quarter.

In the three months ended March 30, Disney's revenue increased 1.2% year-over-year to $22.08 billion. Earnings per share (EPS) were up 30.1% to $1.21 from the year-ago period.

Disney's results were given a boost by strong numbers from Disney+ and Hulu, which each posted a profit for the first time ever in the March quarter. Additionally, Disney+ Core subscribers were up 6% compared to the end of 2023 to 117.6 million. ESPN, on the other hand, saw a 9% decline in operating income and a 2% drop in paid subscribers.

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The top- and bottom-line results were mixed compared with analysts' expectations. According to CNBC, Wall Street was anticipating revenue of $22.11 billion and EPS of $1.10.

As a result of its impressive earnings results in the first six months of its fiscal year, Disney raised its full-year EPS outlook, now calling for 25% year-over-year growth vs its previous guidance of 20% growth.

"Our strong performance in Q2, with adjusted EPS up 30% compared to the prior year, demonstrates we are delivering on our strategic priorities and building for the future," Disney CEO Bob Iger said in a statement. "Our results were driven in large part by our Experiences segment as well as our streaming business. Importantly, entertainment streaming was profitable for the quarter, and we remain on track to achieve profitability in our combined streaming businesses in Q4."

Is Disney stock a buy, sell or hold?

Despite Disney's mixed results, analysts are still overwhelmingly bullish on the blue chip stock. According to S&P Global Market Intelligence, analysts' average target price for DIS stock is $126.48, representing implied upside of more than 20% to current levels. Additionally, the consensus recommendation is Buy.

BofA Securities is one of the firms with a Buy rating on Disney stock. It also has a $145 price target, representing implied upside of nearly 40% to current levels.

"DIS reported a solid fiscal second quarter with revenue essentially inline and operating income modestly ahead of our expectations," BofA analyst Jessica Reif Ehrlich said in a May 7 note. She adds that near-term catalysts for the Dow Jones stock include an inflection in profitability for its direct-to-consumer division and additional updates on the company's strategic priorities.

Today's pullback makes for an attractive buy-the-dip setup, says Don Montanaro, president of Firstrade. "Smart investors might want to buy Disney when it dips like it has today, and then patiently hold as the future dynamism of streaming revenues emerges over time," Montanaro says. "Imagine ESPN as a personalized streaming service including integrated social media interactions with star athletes plus easy gambling at viewers" fingertips. That's a differentiated, modern experience."

The executive adds that investors who share this long-term outlook and have  plenty of patience should adopt a buy-and-hold strategy with Disney stock. 

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