Disney is 'an expensive stock compared with everything else in media,' analyst says
Shares of Walt Disney Co. closed at their lowest level in nearly nine years Thursday, and even there they may not be cheap.
The media conglomerate's stock remains under pressure amid a host of challenges, and KeyBanc Capital Markets analyst Brandon Nispel still views it as expensive relative to peers, despite a selloff that has taken the share price down 59% from Disney's $(DIS)$ all-time closing high established in early 2021.
"From our point of view, Disney has problems across just about every one of its businesses," Nispel told MarketWatch. These include a declining linear-TV business, a complicated shift toward streaming, an underperforming studios unit and a comedown for the parks business as the initial period of postpandemic exuberance wanes.
Disney's troubles in linear television and streaming go hand in hand. Pay-TV subscribers are declining at a 6% to 7% rate, weighing on advertising and affiliate revenue. Meanwhile, media companies bled dry their linear offerings in pursuit of streaming success, but the streaming business has been unprofitable, something companies are trying to reverse.
That effort isn't so straightforward, however. "People aren't going to value the profits that start coming in on that business unless it's paired with some sort of subscriber growth," Nispel said, highlighting multiple compression for a peer like Netflix $(NFLX)$, which is profitable but growing subscribers much more slowly than it once did.
Meanwhile, Disney's studio business "looks to forever be a loss leader," something that wasn't always the case, according to Nispel, who has a sector-weight rating on the stock. Disney has spent heavily on films like "Elemental" and "Indiana Jones" only to watch them fall flat.
While it generally seems now that film studios are having a harder time crafting hits, rivals have had somewhat better luck and "Disney has been the unique one in that its content business is not performing," he said.
Nispel also thinks that Disney "probably overearned" in its parks business as it benefited from strong pent-up domestic demand as the economy reopened, only to see softness more recently. That's potentially an area of concern as parks profits have been crucial to Disney at a time when profits are harder to come by in other areas of the business, though Nispel acknowledged that Disney's international parks currently are doing well.
Despite their move lower, Disney shares are "not necessarily cheap," from Nispel's perspective. His estimates are below the consensus view, and that consensus looks high to him heading into next year. The company will have a hard time clearing high-single-digit growth in revenue and total operating income this year, and implied expectations for mid-20% growth next year seem suggestive of a "massive" and "difficult" acceleration.
Disney is "an expensive stock compared with everything else in media, which is very cheap," he said. The stock trades at 10.5 times his out-year expectations for earnings before interest, taxes, depreciation and amortization, while peers trade at 6 to 8 times.
Shares of Disney dropped 3.9% Thursday to finish the day at $82.47. That made for the stock's lowest close since Oct. 16, 2014, when they ended the session at $81.74, according to Dow Jones Market Data.
Disney's stock is down 59% from its all-time closing high of $201.91 that was set March 8, 2021.
