Disney stock has been trading at $102 per share, which is significantly lower than its pre-inflation shock high of $202 seen in March 2021. The decline in stock price can be attributed to various factors, including slowing subscriber growth in Disney’s streaming business and increasing competition, as well as weak performance in the linear TV business due to lower advertising and declining affiliate revenues. While the theme park business has been performing well since the Covid-19 reopening, the near-term outlook is mixed due to higher costs and normalization in attendance. However, the stock has shown signs of recovery, with better-than-expected Q2 FY’24 results and a surprise operating profit in the streaming operations.
Over a longer period, Disney stock has underperformed the broader market, with returns of -15% in 2021, -44% in 2022, and 4% in 2023, compared to the S&P 500’s 27% return in 2021, -19% in 2022, and 24% in 2023. The Trefis High Quality Portfolio, on the other hand, has outperformed the S&P 500 each year over the same period, providing better returns with less risk. Given the current uncertain macroeconomic environment, Disney’s ability to outperform the market over the next 12 months remains uncertain.
Disney stock could potentially see gains if it recovers to its 2021 levels, which would require a 99% increase from its current price of $102. Factors that could drive Disney stock higher include the company’s focus on boosting profitability in its streaming business and the revival of its theatrical business with successful releases like Inside Out 2. However, despite being undervalued, the upside for Disney in the near term may be limited by a mixed economy and weaker consumer confidence.
The recent inflation shock has impacted various sectors, including Disney. Inflation rates have crossed 4%, and the energy and food prices increased due to the Russian invasion of Ukraine, leading to a peak inflation level of 9% in June 2022. The Fed has responded by hiking interest rates, resulting in market volatility. However, the Fed’s efforts to stabilize the economy could benefit Disney stock once fears of a potential recession are alleviated.
Looking back at the 2007-08 financial crisis, Disney stock declined by over 40% but rebounded strongly. The company’s revenues have been on the rise, reaching around $89 billion over the last 12 months, driven by growth in the theme park and streaming businesses. With the potential for gains once market sentiment improves, Disney stock remains an interesting investment opportunity for investors looking for long-term growth potential amidst market uncertainties.
