The return of Bob Iger was the best news Disney (NYSE: DIS) could have given shareholders, and the proof is in the Q1 F2024 results. Top-line growth is absent, but all other metrics reveal growing momentum that means returns for investors. Because the stock is trading near historical lows, the opportunity for total returns is substantial.
The company quietly resumed its dividend distribution in December 2023, increased it by 50% for the summer payout, and is on track to sustain dividend increases for years. Now, the outlook is compounded by share repurchases, with the market on the brink of a reversal that could add 100% to the share price over the next few years. The summer 2024 payout is worth $0.45% for investors, about 0.9% forward yield and less than 20% of the earnings guidance, leaving ample room for aggressive increases next year.
Disney Earnings Transcript
Disney’s board authorized the first share repurchases since 2018. Iger is targeting $3 billion in repurchases this year, about 1.65% of the pre-release market cap, and total buybacks could easily exceed that figure. Among the report's highlights is a better-than-expected margin driving cash flow and setting the business up for earnings leverage as top-line growth resumes. Growth is expected to resume by the end of the year, accelerating sequentially into 2025.
Disney has a solid quarter, leverages strengths and sets up for growth
Disney had a solid quarter with revenue of $23.5 billion, which is flat compared to last year, despite being 115 bps short of the Marketbeat.com consensus. The weakness in the Entertainment segment offset the strength in the Sports and Experience segments, which grew 4% and 7%. Entertainment was impacted by a decline in Disney+ subscribers attributed to higher costs. The silver lining is that higher costs are aiding Disney’s margin and guidance forecasts that subscriber growth will return.
Margin news is favorable to shareholders. Iger’s cost-cutting efforts trimmed $0.5 billion in SG&A expenses and helped drive better-than-expected cash flow, free cash flow and earnings. The adjusted earnings are up 23% YOY, beating the consensus by $0.18, and cost savings are sticky. The guidance forecasts FY earnings to grow by 20%, and the guidance may be cautious.
Several new initiatives announced the week of the report suggest revenue and earnings growth will be stronger than currently guided and forecast by analysts. Among them is a deal to package Disney’s sports franchises in a cable bundle with Fox (NASDAQ: FOX) and Warner Bros. Discovery (NASDAQ: WBD) assets. Later, in 2025, Disney plans to launch a stand-alone option for ESPN as it leans into building the brand and expanding its reach outside of traditional television.
Another deal that could impact revenue and earnings this year is a new stake in Epic Games. Disney took a $1.5 billion stake in the 3-D gaming platform and developer engine to build content around a “transformational new games and entertainment universe.” Competitor in the metaverse, Roblox (NYSE: RBLX), is tracking for $3 billion in annual revenue, a target Disney will reach quickly, adding 300 to 500 basis points in growth relative to the F2024 outlook.
Analysts send Disney shares higher with the wave of a wand
The analysts are gushing over Disney’s results and outlook. The stock received at least a dozen upgrades or boosted price targets in the first twelve hours after the release, aiding the updraft in the price action. Most new targets align or are above the consensus $109 reported by Marketbeat. The consensus is about 10% above the price action, with another 10% to 15% possible at the range's high end. Regardless, a move to the consensus target puts the action near critical resistance, and the Disney market is on track to completing a reversal.
The post-release pop has the market just below critical resistance at the baseline of a Head & Shoulders bottom. The baseline is consistent with a long-term moving average and may cap gains soon. However, assuming Disney’s news continues to be good, a move above this level would be bullish and likely lead to a sustained rally.
