Key Takeaways:
- The 2-Minute Valuation Model values Disney stock at $138/share in just under 2 years.
- This implies that the stock has over 20% upside from its current share price.
- Get accurate financial data on over 100,000 global stocks for free on TIKR >>>
Disney’s stock has fallen over 20% in the past 3 years due to challenges in its streaming business, linear TV, and concerns with the company’s strategic direction:
Nevertheless, Morningstar still rates Disney as a wide-moat company due to its strong content franchises. Disney is still figuring out the proper monetization strategy for its Hulu, Disney+, and ESPN+ streaming businesses. However, Disney will continue to be a leader in entertainment with its portfolio of strong brands.
Additionally, many believe that CEO Bob Iger’s return can help refocus the company on its core strengths, including maximizing the value of its content franchises and stabilizing its media networks.
Today, it looks like Disney is slightly undervalued.
What is the 2-Minute Valuation Model?
There are 3 core factors that drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
The 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings per share, or EPS, and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why Disney Looks Undervalued
Forecast
On Disney’s Analyst Estimates tab shown below, you can see analysts expect the company to grow revenue at nearly a 5% compound annual growth rate over the next 2.75 years, with normalized earnings per share, or EPS, expected to grow at roughly 11% annually:
View Disney’s full analyst estimates >>>
For context, this is considerable growth from the past 5 years, where Disney’s revenue grew at 5.6% annually, while EPS declined at 3% annually.
Valuation Multiple
Disney stock currently trades at around $112 per share, which means the stock trades at around 2.5 times next year’s expected revenue and just over 20 times next year’s expected earnings.
Disney has averaged a 22x forward P/E multiple over the past 5 years, but just to be conservative, we’ll use a 20x P/E multiple in our valuation.
Value stocks quicker with TIKR >>>
Disney still looks undervalued.
Fair Value
2.75 years from now, Disney is expected to reach about $6.80 in normalized EPS. At a 20x NTM P/E multiple, that values Disney stock at $136/share. We can add an extra $2 per share for the dividends that Disney is expected to pay, bringing the final fair value to $138/share.
(The NTM P/E multiple uses the expected earnings for the next twelve months, so a 1.75-year valuation uses 2.75-year EPS forecast figures. We’re using a 1.75-year valuation because Disney’s fiscal year ends in September, three-quarters of the way through the year.)
With the stock trading at about $112 today, this implies that Disney stock could rise a magical 12.7% per year over the next 1.75 years, or 23% in total, to reach this fair value:
The market has averaged about 10% annual returns over the long run, so 12.7% annual returns would exceed the market’s long-term average. Disney stock could be appealing for investors looking to invest in a business with some of the world’s most iconic and enduring brands.
Find the best stocks to buy today with TIKR >>>
Analysts’ Price Target
The consensus analyst price target for Disney today is about $123 per share, which means analysts think the stock has about 10% upside from its current price.
In the graph below, you can see that analysts have been fairly accurate in setting Disney’s price target.
For reference, analysts thought the stock was most undervalued when the blue line was high, while they thought the stock was overvalued when the blue line was low.
The stock doesn’t have as much upside today as it used to, but analysts still think Disney is slightly undervalued.
Analysts’ price targets can suffer from many biases and aren’t always accurate.
Still, looking at analysts’ consensus price targets can be a great way to get a “second opinion” on your own stock valuation.
TIKR Takeaway
Based on the 2-Minute Valuation Model, it looks like Disney stock is slightly undervalued today, and the stock could go up over 20% over the course of a year and three-quarters.
Don’t take our word for it—try it out for yourself! Analyze Disney or any stock you’re interested in on TIKR today!
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks and was built for investors who think of buying stocks as buying a piece of a business.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. We aim to provide informative and engaging analysis to help empower individuals to make their own investment decisions. Neither TIKR nor our authors hold positions in any of the stocks mentioned in this article. Thank you for reading, and happy investing!
