Mouse Rising: The Iger Investment Pays Off for Disney Investors

Key Points

• Disney had a strong Q4 underpinned by improvement in numerous core growth markets. 
• The 2025, 2026, and 2027 guidance robustly forecasts double-digit operating earnings growth each year. 
• Capital returns and balance sheet health support an outlook for rising share prices: capital returns are forecast to increase with dividend growth tracking earnings growth. 

As controversial and emotionally charged as Iger’s return was for the market, it is a move paying off for investors at Walt Disney NYSE: DIS. His return keeps the company on track to sustain long-term growth, healthy cash flows, and increasing capital returns while delivering value to its consumers. The results from Q3 are a testament to his efforts, including optimizing the streaming business. Streaming and entertainment were the driving forces of growth in FQ4, but strengths were seen across the board, including widening the total system margin. 

The critical detail is that the company outperformed, accelerated its growth, and provided robust guidance forecasting double-digit earnings growth for the next three years underpinned by streaming and sports. That puts the stock at quite a value, trading at only 15.5X the low end of projections, with dividends, share buybacks, and distribution growth also in the picture. 

The company’s dividend is worth about 0.80% in annualized return with shares near $100, which is not a large figure but is forecasted to grow in alignment with adjusted earnings, so at least 10% annually. The share repurchases are more substantial, reducing the share count by 1% in F2024 and $3 billion targeted for 2025, about 1.6% of the market cap going into the release. 

Disney’s Exceeds Targets: Raises Guidance for 2025

Disney had a solid quarter in FQ4, with growth in the core entertainment and experiences segments offsetting weakness in the sports segment. Total revenue is up 6.3% compared to the prior year, outpacing the consensus estimate by a slim margin and accelerating from the prior quarter and year. Entertainment is where the results shined. The entertainment segment grew by 14%, with leverage resulting in operating income. Within Sports, green shoots were seen in the Domestic ESPN ad business, up 7%, and Experiences grew by 1% to set records for revenue and income. 

Total segment income is another area of strength in Q3 and moving forward. The company grew its total segment operating income by 23% for the quarter and 21% for the year, with additional gains expected in coming quarters. Critical details from the earnings results are that free cash flow is up 18%, more than triple the top-line growth, and the GAAP and adjusted earnings growth was strong. GAAP earnings grew by nearly 80%, while the adjusted $1.14 is up 39% and nearly 300 bps better than the consensus reported by MarketBeat. 

The balance sheet highlights are favorable to shareholders. Business activities reduced the cash, current, and total assets while also reducing the borrowings, long-term liabilities and total liability. The net result is a 1.4% increase in equity and an expectation for the cash balance to begin growing as soon as FQ1 2025. Regarding the balance sheet health, debt, including current and long-term borrowing and other liabilities, is less than 0.5X equity, raising no red flags for investors. 

Analysts See Disney Advancing Another 10% 

The analysts show a high conviction in the consensus Moderate Buy rating, with 82% of the twenty-two tracked by MarketBeat rating at Buy or higher. They also show a high conviction in the consensus price target, which is up compared to last year but holding steady compared to last month and last quarter. The consensus is near $119 or about 6% above the post-release price action and a critical pivot point with the high-end range another $20 or 17% higher. The Q3 results are unlikely to alter the trend and are likely to strengthen it, so investors may expect to see upgrades and price target increases over the coming weeks and months. 

The price action in Disney stock is bullish. It rose nearly 10% following the release to trade above a critical resistance point near $110.50, coinciding with price peaks and resistance in 2022 and 2023. If the market can sustain support at this level, the odds are high that it will continue higher. The next critical targets for technical resistance are near $115 and $120, and if broken, they will lead to a much larger advance.