Disney is good for a double, this investor says

Fans of Disney (Walt Disney Company Stock Quote, Charts, News, Analysts, Financials NYSE:DIS) have enjoyed watching the stock produce a nice little rally over the month of January, but there’s still a lot of ground to recover.

DIS remains well off its highs and seems mired in uncertainty related to a number of macro issues: the looming recession and its impact on, for example, attendance at Disney’s parks. Then there are COVID-related issues and worries about competition and profitability in the streaming space. That plus worries about the rehiring of a CEO in Bob Iger who left the company just a couple of years ago, and together you’ve got a lot of questions swirling around the Mouse House.

But portfolio manager Lorne Steinberg has a different take and argues that Disney has too much going for it to stay down for long.

“Walt Disney shares are under pressure. Disney+ has been growing slower as has the whole streaming sector. But Disney’s movie business is booming with all those movies, Pixar, the Marvel companies and Star Wars and theme parks … people just can’t get enough of them and they just keep on raising prices forever,” said Steinberg, president of Lorne Steinberg Wealth Management, who spoke on BNN Bloomberg on Monday where he nominated Disney as one of his top picks for the 12 months ahead.

Revenue was up by nine per cent year-over-year in Disney’s most recently reported quarter, the company’s Q4 2022, delivered in November. And for the fiscal year, Disney’s revenue was up 23 per cent, a good sign, as business in its Parks, Experiences and Products segment grew by a full 73 per cent compared to the more pandemic-impacted fiscal 2021. 

But those fourth quarter results came in lower than analysts had expected, with total revenue of $20.15 billion coming in under the forecasted average call of $21.24 billion and EPS of $0.30 per share arriving well off the $0.55 per share Street estimate.

Steinberg said Disney’s streaming business, while currently a drag on earnings, will turn things around eventually, and that’ll put wind in Disney’s sails.

“The streaming business is losing money. It cost them $1.5 billion last quarter. But that’s probably the peak, and so streaming will get to profitability in the next couple of years,” he said. “It’s currently costing them about $3 a share. So, we’re expecting the share earnings from Disney to double over the next three to four years.” 

“They own just an incomparable a unique set of franchises. They’re growing the business and they do what they do so well that for us the stock has been unfairly punished and the shares should be double this price in the next few years,” Steinberg said.