Now’s The Time To Buy Disney (NYSE: DIS)

If you managed to avoid the 50% sell-off seen in Disney NYSE: DIS stock over the past year, get excited. It might just be time to start backing up the truck. The entertainment giant released their Q2 earnings last week and gave investors a lot to chew on. At first glance, however, they didn’t look great. Both EPS and revenue missed analyst expectations, but at least the latter was still able to post year on year growth of 23%. 
Bob Chapek, Disney CEO, dismissed the headline numbers and focused instead on the upside seen in their parks and streaming businesses. He told investors that “our strong results in the second quarter, including a fantastic performance at our domestic parks and continued growth of our streaming services—with 7.9 million Disney+ subscribers added in the quarter and total subscriptions across all our DTC offerings exceeding 205 million—once again proved that we are in a league of our own. As we look ahead to Disney’s second century, I am confident we will continue to transform entertainment by combining extraordinary storytelling with innovative technology to create an even larger, more connected, and magical Disney universe for families and fans around the world.”

Strong Streaming Numbers

It was a bullish stance to take, especially considering the stock had been trading at fresh 52-week lows in the days preceding the release. When it came to the specifics with their streaming business, Disney+, the numbers there grew faster than expected in terms of viewers, adding about 8 million subscribers to reach 137.7 million, above expectations for 134.4 million.

Disney’s other streaming logos also performed well. ESPN+ rose to 22.3 million subscribers, compared to expectations of 22.5 million subscribers, while Hulu subscribers hit 45.6 million, or 1 million shy of forecasts. Hulu Plus Live TV reported 4.1 million subscribers compared to expectations of 4.4 million subscribers. Altogether, it can now be said that Disney’s streaming services have a total of 205 direct-to-consumer subscribers, bringing it very close to Netflix's (NASDAQ: NFLX) 221 million.

But unlike Netflix, who is looking very lonely as a one trick pony right now, Disney also has its parks, and revenue from that segment came in at $6.7 billion. It is truly a titan and absolute money printing machine. CEO Chapek noted the Parks business was still "firing on all cylinders, thanks to strong demand, coupled with customized and personalized guest experience enhancements that grew per capita spending by more than 40% versus 2019." The Q3 demand pipeline is still robust, he added.

Getting Involved

Shares initially fell in the aftermath of the release, possibly as a snap reaction to the headline miss. But they quickly tagged a bottom just below $100 and then put in a stunning reversal into the close. That bid has continued into this week and they’re currently up more than 10% from the low point. This $100 level is an interesting zone for Disney shares, and one for investors to watch. It’s where shares have come across strong resistance and support several times in the past six years, and for those of us considering getting involved now, you couldn’t really ask for a better level to work an entry or exit around.

Investors who might be tempted to start establishing a position are in good company. Bank of America analyst Jessica Reif Ehrlich reiterated her Buy rating on Disney in the aftermath of last week’s report. While she still lowered her price target to $140 from $191, that implies there’s upside of about 40% to be had from where shares closed on Tuesday. She also pointed out that Disney has several near term catalysts, including “continued improvement in its theme parks, the continued roll-out of its subscription services in different markets, along with increased content, as well as its upcoming film slate and the future reinstatement of the dividend."

Citi analyst Jason Bazinet also reiterated his Buy rating, and his $200 price target is even more appealing with its implied 100% upside. In a market environment such as this, investors have to be pickier than ever, but with Disney and its current risk-reward profile, you can be pretty sure a buy here is a good long-term move.