Key Points: Disney parks and experiences unit was the star of the recent earnings report, beating on both the top and bottom line. Streaming profitability is increasing with the margin set to jump to 10% this year from 5% last year. Disney is historically cheap with a price-earnings ratio under 15. This comes as the company is set to increase its dividend and buyback in coming years. I am a buyer of Disney , one of the most iconic brands, because of the growth opportunity in parks and experiences, the turn in profitability for streaming and a historically cheap valuation — not to mention — the moves it has made to return more money to shareholders. Disney shares have struggled this year and are actually essentially flat over the past four years. The immediate concern is rising gasoline prices eating away at consumers' wallets because of the Iran oil crisis. Longer-term, investors have been worried about the cost of the streaming buildout, the CEO transition from legendary Bob Iger and the post-Covid future of parks and experiences. Last month, Disney said Josh D'Amaro will take over as CEO from Iger this Wednesday. D'Amaro is chairman of the experiences division, a sign of how important the company feels that unit is to its future growth. Parks growth The parks and experiences unit was the star of Disney's recent fiscal first quarter earnings report, posting $3.31 billion in profit and $10.01 billion in revenue, higher than the consensus estimates of $3.22 billion and $9.92 billion, respectively, collected by StreetAccount. It was the only Disney segment to beat on both the top and bottom line compared to the other two units: entertainment and sports. The company said it believes experiences will grow operating income by high-single digits this fiscal year, noting strong attendance and pricing trends. "We feel terrific about the parks and cruises business," said CFO Hugh Johnston at the Morgan Stanley Technology, Media and Telecom Conference earlier this month, who also noted that current parks are filling up so that caps attendance growth. But Johnston said "more and more" capacity will be added the next three years. Disney is currently in the middle of its most ambitious buildout of its parks in history, including: A renaming of Disneyland Paris to Disney Adventure World, accompanied by a new "World of Frozen" and a "Lion King"-themed area New lands and attractions tied to "Encanto," "Indiana Jones," Disney villains, "Cars" and "Monsters, Inc." at Walt Disney World "Coco," "Avatar," and "Avengers," attractions added to Disneyland A doubling of its Disney Cruise Line fleet The financials show the growing importance of the experiences unit to Disney. The business is growing at a faster rate than entertainment and sports. And because of that growth, the unit is taking up an increasingly bigger part of the revenue pie, accounting for more than 38% of the company's 2025 revenue. That's up from less than 36% in 2023. Streaming turning corner When it comes to streaming, Disney actually turned a profit, and the combination of Disney, Hulu, and ESPN is more than offsetting the linear TV decline that it is seeing. I expect this business to grow over 10% this year and provide a great opportunity for future growth. Disney said operating income last quarter for the streaming segment was $450 million, up from $260 million a year ago, and noted that costs are starting to level off, which is helping margins. The company said streaming income will be $500 million this quarter, up by $200 million from a year ago. And Disney said on the earnings conference call that the profit margin on streaming will be 10% this year, an increase from the 5% margin last year. Historically cheap Historically, Disney over the last five years has traded at an average of 24 times earnings. Over the last three years, the average price-earnings ratio was 19. Today, Disney is trading at a bargain basement P-E under 15. That's the lowest since early 2019. Despite valuation expansion, there are other ways shareholder returns are set to grow over time. The company has a current dividend of 1.5% that it has been increasing. And Disney is actually going to have operating cash flow over $19 billion this year, which will support a planned $7 billion buyback. Analyst opinion Wall Street agrees with me that the stock is cheap and due for upside. The 12-month consensus analyst price target calls for a 30%-plus gain in the shares. Bank of America noted the experiences unit strength in its analysis of recent earnings and sees the stock eventually rising to $140 a share. "Drivers include: (1) profitability inflection/growth in DTC; (2) reacceleration in the Parks; and (3) multiyear Sports drivers (personalization, betting, multiscreen), cementing ESPN's role as the premium sports platform," wrote top analyst Jessica Reif Ehrlich in the note. Bottom line: I think Disney is one of the best values in the market today. Disclosures: Douglas C. Lane & Associates owns DIS. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
