Rick Stuchberry still believes in the magic of Disney

In a Monday appearance on BNN, the Wellington-Altus Private Wealth portfolio manager listed Walt Disney (Walt Disney Company Stock Quote, Charts, News, Analysts, Financials NYSE:DIS) as one of his Top Picks for the year ahead. Stuchberry’s assessment is largely in line with the Wall Street consensus, where 29 of 37 analysts gave Disney a “Buy” rating with a consensus target of $192.54/share (all figures in this analysis are in US dollars) for an implied one-year return of 47.1 per cent.

“People look at it and say ‘Oh gee, well everything’s going wrong at Disney,’ but it isn’t,” Stuchberry said. “The market’s taken it down. The streaming business looks pretty good, but the theme parks, they’re not running it where they should be because of the COVID thing, but once the COVID passes? You’re getting movie libraries, you’re getting the whole package and Disney at a very good price now.”

Disney released its 2021 fourth quarter financials, along with year-end results, in November, with a 26 per cent year-over-year improvement in the quarter ($18.5 billion in 2021, $14.7 billion in 2020) helping the company post a three per cent improvement in total annual revenue, growing from $65.4 billion to $67.4 billion.

Among the chief growth drivers was the company’s Direct-to-Consumer revenue stream, which grew 38 per cent year-over-year to $4.6 billion in the final quarter of 2021, helping to precipitate a 55 per cent overall improvement from the reported $10.5 billion in 2020 to the 2021 figure of $16.3 billion.

In its release, Disney noted a total of 179 million subscriptions across its DTC network, highlighted by a 60 per cent increase in subscribers to the company’s Disney+ platform in its second year, crossing into nine figures at 118.1 million subscribers thanks to having two new releases in the quarter, Black Widow and Jungle Cruise, compared to the sole release of Mulan in the same quarter of 2020.

Meanwhile, the Disney-owned ESPN+ experienced a 66 per cent year-over-year increase in subscribers, while another Disney-owned DTC offering, Hulu, experienced more subdued growth at 20 per cent, including a two per cent decrease in its Live TV + SVOD option. 

All told, the improvement helped Disney’s Media and Entertainment Distribution division crack $50 billion in revenue (approximately $50.9 billion), accounting for three-quarters of the company’s revenue mix while COVID-19 continues to affect the company’s theme park, vacation and cruise offerings.

“This has been a very productive year for The Walt Disney Company, as we’ve made great strides in reopening our businesses while taking meaningful and innovative steps in Direct-to-Consumer and at our Parks, particularly with our popular new Disney Genie and Magic Key offerings,” said Disney CEO Bob Chapek in the company’s November 10 press release. “We continue to manage our DTC business for the long-term, and are confident that our high-quality entertainment and expansion into additional markets worldwide will enable us to further grow our streaming platforms globally.” 

With consumer preferences continuing to shift, the company’s linear network offerings reported losses in the final quarter, with Disney’s five per cent loss on domestic channels ($5.7 billion in 2020, $5.4 billion in 2021) coming on account of lower results at ABC and the other networks it owns, along with increased marketing and production costs.

Meanwhile, international channels brought in three per cent less revenue ($1.33 billion in 2020, $1.28 billion in 2021), though it also experienced a 49 per cent in operating income to $140 million due to a decrease in programming and production costs and higher advertising revenue, partially offset by lower affiliate revenue.

Disney also made waves just before the holidays, as former Independent Lead Director Susan Arnold was tapped to replace Robert Iger as Chair of the Walt Disney Company’s Board, which was effective December 31.

“Susan is an incredibly esteemed executive whose wealth of experience, unwavering integrity, and expert judgment have been invaluable to the Company since she first joined the Board in 2007,” Iger said in a December 1 press release. “Having most recently served as independent Lead Director, Susan is the perfect choice for Chairman of the Board, and I am confident the company is well-positioned for continued success under her guidance and leadership.”

Disney has a pair of significant events on the horizon, as the company will release its financial results for the first quarter of the 2022 fiscal year on February 9, with its annual shareholders meeting scheduled for March 9.

Despite being down 22 per cent over the last 12 months and 14.4 per cent in 2022 alone, Stuchberry firmly believes Disney is an attractive buy at its current price point, which is at its 52-week low.

“We think this is a real opportunity to get a forward looking company with good management and lots of leverage to the upside when things improve going forward,” Stuchberry said.