Disney: The Road Ahead in 2024
3min read 
Walt Disney Co (DIS) has been at the forefront of the media and entertainment industry for years. In this article, we delve into the growth potential and investment value of Disney by examining key themes and factors that are shaping the stocks future. From the impact of TV advertising trends to the consolidation in the media sector, we analyze the opportunities and challenges that Disney may face in the coming years.
Shares of The Walt Disney Company (DIS) have had a turbulent year, as investors and analysts try to decipher the companys long-term direction. The recent announcement that James Gorman, CEO of Morgan Stanley, will join Disneys succession planning committee to help select CEO Bob Igers successor has caused some excitement, and UBS expects media consolidation to be a focus following recent headlines regarding Paramount/Warner Bros. Discovery. There have been a multitude of activist investors involved with DIS. The outcome from proxy battles will help shape DIS' business model for years to come.
UBS as it named DIS one of its top plays in media. The firm highlights that Disney stands to benefit from certain industry trends, including the pressure on TV advertising and a pullback in content spending. Despite these challenges, Disneys asset value, potential strategic developments, and accelerating OI/EPS growth position it with a positive risk/reward profile. Moreover, the companys strong brand recognition and wide range of content offerings position it well to capitalize on evolving consumer preferences.
The media landscape has been undergoing significant transformation, and UBS predicts that media consolidation will remain a focus. Recent headlines regarding Paramount/Warner Brothers Discovery have emphasized the structural issues facing the industry. As Disney continues to prioritize its direct-to-consumer (DTC) offerings, it may explore strategic partnerships or acquisition opportunities to strengthen its position in the market.
Blackwells Capitals intention to nominate three directors to Disneys board signals a push for potential enhancements and changes within the company. While the Disney committee reviews these proposed nominees, it demonstrates the shareholder activism that could impact Disneys future decisions. Additionally, Disneys succession planning committee includes experienced individuals like James Gorman, who will bring valuable insights in selecting CEO Bob Igers successor.
Morgan Stanleys analysis highlights the strength of Disneys Experiences segment, which includes its theme parks. Despite headwinds such as inflation and tough comparisons, the segment continues to provide downside support. As ESPN prepares for flagship direct-to-consumer initiatives and exciting movie releases, such as Deadpool 3, Inside Out 2, Mufasa: The Lion King, and Moana 2, Disneys diversified content offerings position it well for growth.
KeyBanc Capital Markets points out weakness in Walt Disney World (WDW), which continues to offset Disneylands year-over-year growth. With challenging comparisons at Disneyland as it compares against the 2023 anniversary celebration, KeyBanc expects weaknesses at WDW to persist. However, Universal Studios growth in attendance suggests its ability to outperform Disney, particularly as Disney faces the anniversary celebration comparison. QTD total Disney attendance is tracking -5.5% y/y, and Keybank is seeing less of a ramp into the Holidays vs prior years, with Cruises and International parks expected to drive growth in Experiences, which are not reflected in its attendance data. However, the company is likely to continue to benefit from its strong slate of movies.
DIS plans to merge its India unit with Reliance Industries, which will create the largest media and entertainment industry in India. This move is expected to be a significant step forward for Disney as it looks to expand its global footprint. The merger is likely to result in a more efficient and streamlined operation, which could lead to improved profitability and better margins for the company.
Shares of DIS closed out 2023 with gains of approximately 5%, underperforming the S&P 500 and Dow Jones significantly. The headwinds facing the company weighed on investor sentiment. The stock opens 2024 trading just above the 50- and 200-day moving averages. Its valuation is cheap as it trades around 17x forward earnings. The discount highlights the uncertainty facing the industry giant. This keeps us cautious on the name, especially if we start to see jobs data come in weaker than expected (First jobs report is on Friday, January 5). We would prefer to sit on the sidelines as the potential for weaker economic data and uncertainty around the activist battles lead us to believe we can pick up shares at lower levels. Amid ongoing industry transformations, Disneys ability to adapt and capitalize on changing trends will determine its growth potential and investment value. As it navigates challenges in TV advertising, content spending, and comparisons in theme park attendance, Disneys strategic initiatives, brand recognition, and content offerings provide a strong foundation. Investors should closely monitor Disneys efforts towards DTC profitability, potential media consolidation moves, and the impact of proposed board nominees in shaping the companys long-term success.
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