Is Disney Stock a Buy Ahead of Earnings?

Wall Street analysts are high on Walt Disney (DIS, $100.43) stock ahead of the media conglomerate's earnings report due after Tuesday's closing bell.

Disney stock, a component of the Dow Jones Industrial Average, is off 35% for  the year-to-date, hurt by everything from inflation and recession fears to the streaming wars and lockdowns in China.

But analysts say the selloff has made Disney stock a long-term bargain at current levels. And they are especially keen to see what the company has to say about its streaming and theme parks businesses.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Disney+ is an important driver of the company's long-term growth, analysts note. Netflix's (NFLX) subscriber stumble earlier this year – and NFLX's big third-quarter rebound – only underscore how volatile the streaming business can be.

"The fierce competition over subscribers in the sector is at fever-pitch, and high inflation means convincing customers to stay logged in is a tall order," writes Hargreaves Lansdown analyst Sophie Lund-Yates. "That's something Netflix knows only too well."

Meanwhile, although strong U.S. consumer spending and pent-up demand for travel bode well for Disney's theme parks business, COVID-19 lockdowns in China have shuttered Shanghai Disney. 

The bottom line is that analysts forecast Disney to report adjusted quarterly earnings per share (EPS) of 56 cents, up from year-ago adjusted earnings of 38 cents per share, according to S&P Global Market Intelligence.

Revenue is projected to rise to $21.4 billion from $18.5 billion a year ago, driven by growth in the streaming and theme parks divisions.

A nasty surprise or two in the Disney earnings report could change some minds, but for now analysts believe DIS stock has been beaten down beyond reason.

Morgan Stanley analyst Ben Swinburne, for one, estimates that theme parks and streaming will lift Disney's adjusted EPS back above prior peak levels in fiscal 2025. That should support upside of roughly 40% in Disney stock over the next two years, he says.

Swinburne, of course, rates DIS at Overweight (the equivalent of Buy), and he has plenty of company on the Street. Of the 30 analysts issuing opinions on Disney stock tracked by S&P Global Market Intelligence, 18 rate it at Strong Buy, seven say Buy and five call it a Hold.

That works out to a consensus recommendation just shy of Strong Buy, with analysts frequently citing Disney stock's valuation as a key reason to be constructive on the name. 

And shares do indeed look cheap at current levels. 

Disney stock currently changes hands at not-quite 19 times analysts' fiscal 2023 EPS estimate. That's an attractive price to pay for a company expected to grow EPS at an average annual pace of more than 33% over the next three to five years. 

Bullishness abounds in analysts' price targets, as well. With an average price target of $140.08, the Street gives Disney stock implied upside of almost 40% in the next 12 months or so.