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Disney Stock: More Upside Potential Ahead after Magical Q3
Stock Analysis & Ideas

Disney Stock: More Upside Potential Ahead after Magical Q3

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Disney stock is fresh off a great third quarter led higher by Parks and its streaming platform Disney+. As the firm’s segments fire on all cylinders again, count me as unsurprised if the firm can surge into a recession.

Shares of media kingpin and video-streamer Disney (DIS) have been on quite a tear of late, soaring off their June lows. Undoubtedly, the stock was oversold and was long overdue for a relief bounce on the back of numerous catalysts I pointed out in prior pieces. Theme parks are flexing their muscles again, and recent Disney+ numbers were far better than feared. Indeed, there’s hope that the company’s third quarter is just a hint of what’s to come for the House of Mouse going into year’s end.

Disney has been through a lot of pain over the past two years. With a solid recovery quarter in the books and a new big-league investor aboard, it seems like the firm is ready to move on from pandemic-era lockdowns, restrictions, and other headwinds while its video-streaming service looks to take considerable share from rivals in a market that many may be too quick to give up on. It’s about time!

I am incredibly bullish on Disney stock, even after the recent bounce.

Disney Stock: Streaming Strength Could Continue

Disney’s latest round of results helped investors breathe a sigh of relief. The video-streaming market has been weighed down by Netflix (NFLX) in the first half. That said, Disney+ shows that there are still plenty of opportunities to be had in the space. With such a massive content library, a commitment to spend billions, and a pipeline continuously yielding intriguing new releases, it seems like Disney+ has the formula to bring the pressure to its top foe Netflix.

In prior pieces, I noted that Disney+ was likely to become the new king of video streaming, thanks to CEO Bob Chapek’s aggressive push, which is not about to slow down just because the economy is open (and likely to remain open).

With a recession on the horizon, viewers will be more selective. They don’t just want the Netflix of old anymore. They want great content, and they want it flowing out of the pipeline on a regular basis. If one series finishes, they want another and a couple of flicks to enjoy on the side.

Though all streamers are prone to content “droughts,” it seems like Disney has found a way to trickle in the great content over time such that consumers never find themselves searching endlessly, wondering what they’re going to watch next. This steady pipeline is a source of strength for Disney+. However, such a full pipeline does not come cheap. Disney is only starting to reap the rewards of its multi-billion-dollar content-spending spree.

As we fall into a recession, I think Disney+ has an opportunity to take some serious share away from Netflix and other rivals. Its strategy is too solid, and the bundling of Hulu and ESPN+ holds tremendous promise.

For the third quarter, Disney+ added 14.4 million subscribers globally, while Netflix shed just south of 1 million. Undoubtedly, Netflix needs to pivot, or further share losses seem unavoidable.

It’s not just Disney that’s to blame for Netflix’s pain. New media firms are investing heavily in streaming, and various tech companies like Amazon (AMZN) have its streaming platform, Prime Video, as just one of many services in its Prime subscription bundle.

It’s hard to compete against bundlers and content behemoths like Disney. With Hulu and ESPN+, Disney has more subscribers than Netflix (221.1 million versus 220.7 million).

Looking ahead, I expect the gap to widen unless Netflix can really take a lateral step to offer more value to viewers. Whether that’s in the form of an acquisition or the inclusion of another service to stop subscribers from leaving, Netflix seems up against it as it plays defense.

Expect Disney Theme Parks to Do More Heavy Lifting

Parks, Experiences, and Products saw 70% in sales growth for its latest quarter, helping the firm clock in 26% revenue growth year-over-year. Undoubtedly, a lot of pent-up demand looks to have been met for the quarter.

Further, the effects of the lifting of Shanghai lockdowns have yet to make a full impact. Shanghai Disneyland was not even open for most of the quarter. As the world continues to reopen its doors, I expect Disney’s Parks and Cruises businesses to go from drag to boon.

Disney is raising prices on parks again, but don’t expect traffic to taper anytime soon. There’s still too much pent-up demand out there, and it may help Disney overcome the next recession. I think pent-up demand tailwinds will overpower headwinds from a mild economic downturn. Further, consumers may be getting used to inflation and much higher prices on discretionary goods and experiences.

Is Disney Stock a Buy, Sell, or Hold?

Turning to Wall Street, DIS stock comes in as a Strong Buy. Out of 20 analyst ratings, there are 17 Buys and three Holds.

The average Disney price target is $139.58, implying upside potential of 16.2%. Analyst price targets range from a low of $120.00 per share to a high of $160.00 per share.

Conclusion: Things are Looking Up for Disney

It took quite a while, but things are finally starting to look up for Disney. Parks and Disney+ look incredibly strong and likely to power shares of DIS toward its seemingly distant highs just above $203 per share.

Over the next year, I expect Disney+ to continue gaining ground over rivals. As Shanghai stays open, I’d look for strong Parks numbers to continue, all while Disney raises prices in response to inflation. With such a unique and magical brand, few firms have better pricing power than Disney.

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