Image Source: Valuentum
By Brian Nelson, CFA
On November 8, Disney (DIS) reported improved fourth-quarter results for its fiscal 2023. Revenue advanced 5% on a year-over-year basis in the quarter, and the firm drove non-GAAP diluted earnings per share to $0.82 from $0.30 in the prior year period. The company’s Disney+ streaming service added 7 million core customers in the quarter, and its commentary that its streaming business would reach profitability in the fourth quarter of next fiscal year was welcome. Cost savings will be key, and the executive team expects free cash flow to grow significantly in fiscal 2024 versus the most recently reported year. All of this was great news, but a massive recovery in free cash flow is already factored into its price. Our $81 fair value estimate remains unchanged.
For fiscal 2023, Disney generated ~$9.9 billion in cash flow from operations and spent ~$5 billion in investments in parks, resorts and other properties, translating into free cash flow of ~$4.9 billion, up from ~$1.1 billion in fiscal 2022. For fiscal 2024, we’re forecasting ~$7.6 billion in free cash flow, and for fiscal 2025, we’re expecting as much as ~$9.3 billion in free cash flow. We’re building in quite the turnaround at Disney in our valuation model, and based on what these free cash flows imply with respect to our fair value estimate, we think a strong turnaround is already reflected in the company’s share price. Disney is a fantastic company, but many investors are already big believers in its turnaround, and that may make for a stock that is largely “dead money.” From where we stand, Disney’s shares are priced to perfection, and we remain on the sidelines.
NOW READ: Disney’s 5-Year Returns Have Been Pitiful
NOW READ: Disney: Iger’s Back, Peltz Concedes, Thousands of Jobs Gone, Dividend Coming Back Soon
———-
Tickerized for PARA, PARAA, DIS, NFLX, AMZN, WBD, FOX, FOXA, CMCSA, WMG, SIRI, LGF.A, LGF.B, NXST, SBGI, SONY, AMC, CNK, IMAX, MCS, RDI, NCMI, NTDOY, CSSE, CHTR, DISH, VZ, ATUS, CABO, GTN, TGNA, SSP, MGNI, PUBM, CRTO
Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, QQQ, and SCHG. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and range