Disney shares on the rise: the house of mice is back!

Bob Iger’s return was the best news Disney NYSE: DIS could have given shareholders, and the proof is in the Q1 F2024 results. Revenue growth is absent, but all other metrics reveal growing momentum that means returns for investors. As the stock trades near historic lows, the opportunity for total returns is substantial.

The company quietly resumed its dividend payout in December 2023, increasing it by 50% for the summer payout, and is on track to sustain dividend increases for years. Now, the outlook is worsened by share buybacks, with the market on the verge of a reversal that could boost the share price by 100% over the next few years. The summer 2024 yield is worth 0.45% to investors, about 0.9% forward yield and less than 20% of earnings guidance, leaving plenty of room for aggressive increases next year.

Disney earnings transcript

Disney’s board of directors has authorized the first stock buybacks since 2018. Iger is targeting $3 billion in buybacks this year, about 1.65% of pre-release market capitalization, and the total buybacks could easily exceed this figure. Among the report’s highlights are a better-than-expected margin that drives cash flow and sets the company up for earnings leverage when revenue growth resumes. Growth is expected to resume later this year, subsequently accelerating in 2025.

Disney had a solid quarter, is capitalizing on strengths and poised for growth

Disney had a solid quarter with revenue of $23.5 billion, which was stable from last year, despite being 115 basis points lower than the Marketbeat.com consensus. Weakness in the Entertainment segment offset strength in the Sports and Experience segments, which grew 4% and 7%. Entertainment was impacted by a decline in Disney+ subscribers attributed to higher costs. On the bright side, higher costs are helping Disney’s margin, and forecasts indicate subscriber growth will return.

Margin news is shareholder-friendly. Iger’s cost-cutting efforts reduced SG&A expenses by $0.5 billion and helped generate better-than-expected cash flow, free cash flow and earnings. Adjusted earnings increased 23% year over year, beating consensus by $0.18, and cost savings are persistent. The guidance calls for fiscal year earnings to grow 20%, and the guidance may be cautious.

Several new initiatives announced in the week of the report suggest that revenue and earnings growth will be stronger than currently driven and expected by analysts. Among them is a deal to package Disney’s sports franchises in a cable package Fox NASDAQ: FOX AND Discovery by Warner Bros NASDAQ: WBD resources. Later in 2025, Disney plans to launch a standalone option for ESPN as it aims to build the brand and expand its reach outside of traditional television.

Another deal that could impact revenue and earnings this year is a new stake in Epic Games. Disney has acquired a $1.5 billion stake in the 3-D gaming platform and development engine to create content around a “new universe of transformative games and entertainment.” Competitor in the metaverse, Roblox New York Stock Exchange: RBLXforecasts $3 billion in annual revenue, a goal Disney will quickly reach, adding 300 to 500 basis points of growth over its F2024 outlook.

Analysts send Disney shares up with a wave of a magic wand

Analysts are enthusiastic about Disney’s results and prospects. The stock received at least a dozen upgrades or increased price targets in the first twelve hours after the release, aiding the upward trend in price action. Most of the new targets align with or are above the $109 consensus reported by Marketbeat. The consensus is around 10% above the price action, with another 10-15% possible at the high end of the range. In any case, a move towards the consensus target puts the stock near critical resistance, and the Disney market is on track to complete a reversal.

The rally following the release took the market just below the critical resistance at the Head and Shoulders bottom line. The baseline is consistent with a long-term moving average and may soon limit gains. However, assuming Disney news continues to be good, a move above this level would be bullish and likely lead to a sustained rally.

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