It may not be the price you’d hope to be buying the entertainment and media giant but The Walt Disney Company (Disney Stock Quote, Charts, News, Analysts, Financials NYSE:DIS) should be in your portfolio, says portfolio manager Darren Sissons, even with the stock’s ups and downs.
“Over the years one of the few stocks that I had a very strong negative feeling about not owning for a long period of time was Disney,” said Sissons, vice-president and partner at Campbell Lee & Ross, who spoke on BNN Bloomberg on Wednesday.
“If you’ve got kids you’ve been to Disney and you’re paying for the movie tickets and you’ve bought the goods. It’s just a very good franchise. But what happens is it does go through periods of stagnant growth, for example, prior to COVID it was flat, largely due to the the issues around the sports broadcasting,” he said.
Disney has dropped down a bit over the past half-year after briefly making it over the $200 mark in March. Since then the stock has slid to about $170 per share, which puts it in the negative for the year but still up plenty from the pre-pandemic start of 2020 where DIS was trading around $145.
The pandemic took its toll on Disney in a number of ways as the company’s theme parks were shuttered and cruise ships dry-docked. But it helps to have your eggs in many baskets, as they say, and for Disney that resulted in a rise in subscriptions for its streaming service Disney+ during the stay-at-home lifestyle of COVID-19.
Disney’s financials tell the tale. In its fiscal 2019 (year ended Sept 30), Disney hit $69.6 billion in revenue for a growth rate of 17 per cent, while fiscal 2020’s topline dropped to $65.4 billion, down six per cent. For that fiscal 2020 year, the company’s Parks, Experiences and Products segment fell a huge 37 per cent year-over-year. At the same time, Disney’s Direct-to-Consumer & International segment which included Disney+, launched in the fall of 2019, was up 81 per cent for fiscal 2020.
Disney, which reports its fourth quarter and full-year fiscal 2021 results on November 10, beat analysts’ estimates with its third quarter, delivered in August. Revenue was $17.0 billion versus the consensus expectation of $16.8 billion while EPS was $0.80 per share compared to the expected $0.55 per share. Also a bright spot was Disney+ which generated 116 million paid subscribers, up from 103.6 million for the previous quarter and above the Street’s forecast of 114.5 million.
“We continue to introduce exciting new experiences at our parks and resorts worldwide, along with new guest-centric services, and our direct-to-consumer business is performing very well, with a total of nearly 174 million subscriptions across Disney+, ESPN+ and Hulu at the end of the quarter, and a host of new content coming to the platforms,” said Disney CEO Bob Chapek in an August press release.
For Sissons, Disney’s strengths should ultimately outweigh investors’ hesitancy over quarter-to-quarter changes to the business.
“This is a global best of breed franchise, really one of the kind, so I think when you get an opportunity to buy a Disney then you want to buy it. If you’ve got a long term horizon this is just one you should buy,” Sissons said.
“But in terms of the relative recent performance for those that tend to trade a little bit, last year, everyone was watching Netflix and watching the Disney Channel. And really what happened was Disney got somewhat of a Netflix multiple,” he said. “So, a really great company but it is a little expensive now, but if you’ve got long-term horizon I’d say hold your nose and just buy it. It’s definitely one that you should consider adding to the portfolio.”
Disney took some heat last year when management decided to forego its dividend, which had been paying out around $2.5 billion annually in the years leading up to the pandemic. But even now with its operations slowly coming back online the company appears to have no timeline on bringing back its dividend.
Chapek said in September at a Goldman Sachs investor conference that returning to a better credit rating and getting the company’s cash flow back up to speed will have to come first before the return of the dividend.
“I think what we’re going to do is, number one, our clear priority, and the Board agrees with management, that the clear priority is funding our new growth businesses that we’ve got. But once we get to a point where, again, our cash flow is funding that, handling some of the debt that we’ve got, then everyone agrees that it would be a great thing to reinstate that dividend and do share buybacks,” Chapek said.