Disney: The Compelling Case for Buying Now Before They Scale Up
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The Walt Disney Co. (NYSE: DIS) is the second-largest media and entertainment conglomerate in the world, widely recognized for its portfolio of recognizable brands, iconic intellectual property (IP), and theme parks. The consumer discretionary sector leader has managed to turn its direct-to-consumer (DTC) streaming networks business profitable. Value investors embracing the core strategy of buying low and selling high may take advantage of the low valuations. Disney is trading at a price-earnings (P/E) ratio of 29.42x and 16.46x forward earnings, compared to its average P/E of 46.58x.
The growing number of catalysts and opportunities ahead underscore the potential ramp and scale-up of its multi-engine growth platform, which makes for a compelling case for buying now before it occurs.
The Streaming Networks Are in the Black
Disney's DTC streaming services business, including Disney+, ESPN+ and Hulu, incurred significant operating losses of nearly $1.5 billion in FQ4 2022, more than doubling its $630 million in losses in the year-ago period. This led to the immediate termination and replacement of its then-CEO, Bob Chapek, with returning CEO Bob Iger. Under his stewardship, Disney enacted a $5 billion cost-cutting plan streamlining its services and content.
Implementing $5 Billion in Cost Savings While Boosting Quality
Despite the fanfare behind its Marvel Cinematic Universe (MCU) Disney+ series and continuity-anchored storylines, episodes were extravagantly expensive, costing $20 million to $25 million each to produce. Additionally, its guaranteed box office blowout results also started to fade with disappointing results starting with the Phase Five release of "Ant-Man and Wasp: Quantumania."
Iger decided to reduce the output of shows and movies to focus on quality over quantity. Disney also administered multiple price hikes, boosting average revenue per user (ARPU) for all tiers, including its ad-supported tier.
Disney's Animated MCU Can Be 90% Cheaper Than Live-Action Series
This momentum comes as Disney scales up its direct-to-consumer business with a slate of highly anticipated Marvel Cinematic Universe series. Upcoming titles include the critically acclaimed "Daredevil: Born Again," the Black Panther franchise expansions "Ironheart" and "Eyes of Wakanda," and sleeper hits such as "Marvel Zombies" and "Your Friendly Neighborhood Spider-Man." Rather than focusing on costly live-action productions, most of these new Disney+ series are animated, making them far more cost-effective.
With live-action, the costs can be staggeringly high for a season, ranging from $150 million to $200 million, as they have to use the same A-list actors from their films for continuity of storylines, pay for locations, expensive CGI/VFX, reshoots, and film crews.
The costs for a season with animation can range from $7.5 million to $20 million. While live action attracts more viewers, animation provides a better return on equity (ROE).
Disney's Entertainment Segment Is Ramping Up
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The DTC business is part of Disney's Entertainment segment and was instrumental in its 95% year-over-year (YOY) growth in operating profits in FQ1 2025. In addition to scaling up its direct-to-consumer operations, Disney has a slate of proven billion-dollar blockbuster franchise releases lined up for 2025, including "Zootopia 2" and "Avatar: Fire and Ash," the third installment in the "Avatar" series. Other highly anticipated films include the live-action "Lilo & Stitch," "Thunderbolts," and "The Fantastic Four: First Steps."
Don't write off the merchandising revenues accompanying these films, even after Chinese tariffs. The trajectory for surpassing Disney Experiences' profits is favorable after doubling from $874 million to $1.7 billion versus flat Experiences' profit of $3.11 billion in FQ1 2025.
Disney Experiences Segment Is Steady and Ready to Rise
The stable nature of its Experiences segment can't be understated. When Disney lost $1.5 billion in its DTC streaming business, the theme parks business made $1.5 billion in profits to offset it. While growth has been flat, it is preparing to ramp up thanks to capital expenditures (CapEx) spending of up to $8 billion in its theme parks and cruises.
Its Magic Kingdom theme parks will include its largest slate of expansion projects ever, including themes centered around "Cars," "Monsters, Inc." and Disney Villains, as well as intellectual properties in Animal Kingdom and California Adventure such as "Encanto," "Indiana Jones" and "The Lion King."
Disney Cruise Line is adding seven new ships to its fleet, with Destiny and Adventure launching in 2025. Contrary to popular belief, the ships are family-oriented and kid-friendly, but aren't cheap. They are premium offerings targeting affluent consumers and households costing more than mainstream cruise lines in the transportation sector, like Carnival Corp. & plc (NYSE: CCL).
Barbarians Await at Every Gate, But Disney's Moat Is Wide
Disney is not without competition at every corner. In the Entertainment segment, it faces off with other studios and streaming networks from Comcast Co. (NASDAQ: CMCSA), Peacock, Warner Bros Discovery Inc (NASDAQ: WBD), Max, and the 800-lb gorilla Netflix Inc. (NASDAQ: NFLX). With its Experiences segment, it also faces off with Comcast, which is opening its new Universal Epic Adventure theme park just 15 minutes from its flagship Disney World in Orlando, Florida.
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Globe and Mail
5 hours ago
- Globe and Mail
Small caps to watch: Roots, Major Drilling, Stingray, North West Company and more
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The result was slightly better than expectations of a loss of 19 cents. Adjusted EBITDA was a loss of $7.1-million compared to a loss of $8-million a year earlier. 'Our first-quarter results, marking the third consecutive quarter of year-over-year growth in sales, gross margin, and adjusted EBITDA, speaks to the growing resonance of the Roots brand and the discipline with which we are executing our strategic priorities,' CEO Meghan Roach said in a release. 'From elevated marketing to improved product availability and AI-operational enhancements, we drove meaningful gains across key performance metrics. As we begin 2025, I am proud of how our team continues to innovate and deliver value, while navigating consumer preferences and the evolving retail landscape.' In a call with analysts on Friday, Ms. Roach said the company hasn't seen a pullback in consumer spending so far in the second quarter. 'We've seen a continuation of the strong momentum from Q1 [into Q2],' she said. 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The analysts said they're 'cautiously optimistic in Roots' ability to outperform the industry' in fiscal 2025, despite economic uncertainty weighing on consumer confidence. In the past 52 weeks, the stock has traded between a high of $3.31 and a low of $1.80. The stock is up 45 per cent so far this year, as of Thursday's close. Other small caps making news this week: Major Drilling Group International Inc. (MDI-T) shares closed up 14 per cent to a 52-week high on Thursday after the Moncton, N.B.-based company said activity is ramping up after being delayed by economic uncertainty. 'Given the sharp increase in activity, we expect revenue in the first quarter of 2026 to increase by approximately 20 per cent when compared to what was just reported in Q4 [the fourth quarter],' CEO Denis Larocque said in a call with analysts on Thursday. 'While we don't plan to give quarterly guidance of this nature going forward, we thought it was important to quantify in this one instance given the magnitude of the anticipated revenue increase,' he added, according to a transcript of the call. He also said the company expects margins to improve from the fourth quarter and said year-over-year increases in exploration budgets among several senior mining companies 'should lead to a strong fiscal 2026.' After markets closed on Wednesday, the company reported revenue of $187.5-million, up 12 per cent from $168-million for the same quarter last year. The expectation was for revenue of $181.3-million. Net earnings of $1-million or a penny per share compared to net earnings of $9.9-million or 12 cents a year ago. The expectation was for earnings of 6 cents per share. 'Market hesitation due to tariff-related economic uncertainty impacted performance during the quarter as several project startups were delayed. 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Its net loss of $22.9-million or 58 cents per share compared to a net loss of $54.4-million or $1.40 per share last year. Adjusted earnings came in at $4.7-million or 12 cents per share versus a loss of $46.9-million or $1.21 a year ago. Adjusted EBITDA of $98.4-million compared to $30.2-million last year. In a conference call with analysts on Thursday, CEO Annick Guerard said the company is being careful when talking about the outlook because of last-minute bookings. 'But so far, looking at the past weeks, we can say that bookings have been soft on Europe,' he said, according to a call transcript. 'With the uncertainty in the market, the economic environment, this is a little bit what we were expecting, and this is why we are going to be careful looking at the 18 upcoming months.' 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Its net loss improved to $747,000 or 2 cents per Class A share, compared to a loss of $6.9-million or 17 cents a year ago. Canaccord Genuity analyst Luke Hannan maintained his 'buy' rating and increased his target to $13 from $10 after the report. He said EBITDA for the quarter of $13.5-million was well above his $4.4-million estimate and the consensus forecast of $4.6-million, driven by the Ontario government's recent implementation of the Ontario Grape Support Program (OGSP), which amounted to $9.8-million of incremental gross profit dollars for the quarter. 'In our view, APL's leading positioning in the Canadian wine market, combined with its opportunities for portfolio expansion, volume growth through wine clubs/estate traffic normalization, the Ontario retail modernization, and the implementation of financial support programs, all point towards APL capturing market share and expanding margins,' he wrote. 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"We expect the company to grow its sales by [about] 49 per cent by F2026 [fiscal 2026] and post an EBITDA positive F2025 [fiscal 2025]," he wrote. National Bank analyst John Shao increased his target to $9 from $7.50 and kept his 'outperform' (buy) rating after the report, which he described as 'mixed.' 'Outside the volatile product business, the rest of the business performed well with annual recurring revenue growth, net dollar retention, and gross margin remaining at robust levels. This performance provided us with confidence in a challenging and evolving environment,' he wrote. 'If anything, we believe the company's ability to adapt to this changing environment has been underappreciated.' Canaccord Genuity analyst Doug Taylor maintained his 'buy' rating and $8.50 target price after the earnings report. 'Our positive thesis remains unchanged following a mixed FQ2 as we believe Blackline's competitive positioning, at the vanguard of a trend towards connected safety monitoring devices, remains unchallenged and is likely to be further reinforced by upcoming product initiatives,' he wrote. 'Tariff-related concerns are fading quickly, and while the impact of recent macroeconomic uncertainty is present in the near term, the secular growth trend is intact and should continue to power share performance.' In the past 52 weeks, the stock has traded between a high of $7.96 and a low of $4.10. The stock is up by about 8 per cent so far this year, as of Thursday's close. The North West Company Inc. (NWC-T) shares fell by about 8 per cent this week after the company warned of lower near-term sales due to wildfires in some of the northern Canadian communities it serves. The drop was despite the company reporting higher sales and earnings for its first quarter ended April 30. After markets closed on Tuesday, the company reported sales increased 3.9 per cent to $641.4-million for its first quarter compared to $617.5-million for the year-ago quarter. Net earnings attributable to shareholders were $25.8-million or 53 cents per share compared to $25.5-million or 53 cents per share last year. EBITDA of $70.1-million compared to $67.9-million a year ago. CIBC analyst Ty Collin maintained his 'outperformer' (buy) rating but lowered his target to $59 from $60, partly citing wildfires that are affecting about 10 per cent of the company's Canadian footprint, or about 14 communities. 'While the near-term outlook is noisy, we see this as a lull ahead of more material upcoming catalysts,' he wrote, adding that the weakness in shares is 'a buying opportunity.' One of the catalysts he cited was money from a $23-billion child welfare settlement, which he noted will provide minimum payments of $40,000 per person to about 300,000 First Nations people in Canada, who he notes are a core customer group for North West Co. 'Claims for the settlement opened on March 10, and while there have been no material updates since then, management struck an optimistic tone around the transparency of the process and local advertising efforts,' he wrote. 'The company expects payments to begin flowing early 2026, though we continue to factor them into our estimates for late 2025.' BMO Capital Markets analyst Stephen MacLeod kept his 'outperform' rating but lowered his price target to $59 from $60. 'We believe the company has an attractive retail franchise with a high proportion of stores in defensive markets (Northern Canada, Alaska). Despite near-term headwinds, the longer-term outlook is on-balance positive in light of expected settlement and community-support programs, as well as the potential margin benefits from the company's Next 100 initiative,' he wrote. In the past 52 weeks, the stock has traded between a high of $57.95 and a low of $40.42. The stock is up 2 per cent so far this year. D2L Inc. (DTOL-T) shares were up this week after the company reported higher revenue and swung to a profit in its first quarter ended April 30. After markets closed on Tuesday, the educational technology company reported revenue of US$52.8-million for the period, up 9 per cent from the same quarter last year. The result was slightly below expectations of US$53.1-million. Net income of US$6-million or 6 cents US per share compared to a loss of US$223,424 a year ago. Adjusted EBITDA increased to US$9.3-million, up from US$4-million a year ago and beat expectations of US$7-million. The company also maintained its guidance for its fiscal year ended Jan. 31, 2026 including revenue growth of 7 to 8 per cent. National Bank Financial analyst John Shao maintained his 'outperform' (buy) and $20 price target after the report. 'D2L reported reassuring results following a tough FQ4 [fourth quarter] when macro uncertainties sank the stock by as much as 20 per cent,' he wrote in a note. 'Going into FQ1 [fiscal first quarter], we believe much of that pullback reflected the expectation of a sudden slowdown in sales activities and, as a result, negative operating leverage,' he added, but noted that it didn't happen based on recent results. 'If anything, the high-quality EBITDA beat and the associated operating efficiency improvements position D2L to make strategic investments to capture long-term growth opportunities.' In the past 52 weeks, the stock has traded between a high of $21.11 and a low of $10.40 on the TSX. 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'Stingray continues to impress, with its Free Ad-Supported TV (FAST) business doubling in F2025 and driving consolidated growth and margin expansion,' he wrote in a note. 'Looking forward to F2026, there are plenty of reasons to remain optimistic as FAST looks to have ample runway and leverage has reached a point where well-executed M&A now represents upside. Canaccord Genuity analyst Aravinda Galappatthige maintained his 'buy' rating and increased his target to $13 from $12.50. 'RAY's Q4 result underline the remarkable consistency of the story, marking seven successive quarters of beating our estimates,' he said in a note. 'Moreover, with a steadily delevering balance sheet, we see the prospect of a further step up in buybacks.' National Bank Financial analyst Adam Shine maintained his 'outperform' (buy) target and raised his target to $12 from $11.50. In the past 52 weeks, the stock has traded between a high of $10.05 and a low of $6.76. 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Cision Canada
5 hours ago
- Cision Canada
Canadians can apply for the Canada Disability Benefit on June
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Globe and Mail
6 hours ago
- Globe and Mail
Shares of meatpacking giant JBS begin trading on the NYSE
Shares of Brazilian meat giant JBS fell 6% in early trading as they made their debut Friday on the New York Stock Exchange. Trading in New York is a long-held goal for JBS, which was founded 72 years ago and is now one of the world's largest meat companies. Half of its annual revenue comes from the U.S., where it has more than 72,000 employees. JBS is America's top beef producer and its second-largest producer of poultry and pork. JBS's minority shareholders voted last month to approve the company's plan to list its shares both in Sao Paulo and New York, casting aside opposition from environmental groups, U.S. lawmakers and others who noted JBS' record of corruption, monopolistic behavior and environmental destruction. JBS said a dual listing would give it broader access to investors and more competitive interest rates, which would help it finance its growth. It has also said a U.S. listing would subject it to more oversight from regulators. The U.S. Securities and Exchange Commission approved JBS's planned listing last month. Still, the proposed listing has received significant pushback. Earlier this week, Mighty Earth, an environmental group, said it sent a letter to the NYSE board urging it to decline the listing. Mighty Earth contends that JBS is illegally profiting from deforested land in Brazil. Glass Lewis, an influential independent investor advisory firm, was also among those recommending that JBS's shareholders reject the planned listing. In its report, Glass Lewis said the recent return of brothers Joesley and Wesley Batista to the JBS board should concern investors. The brothers, who are the sons of JBS' founder, were briefly jailed in Brazil in 2017 on bribery and corruption charges. Glass Lewis also objected to the company's plan for dual share classes, which give the Batistas and other controlling shareholders more voting power.
