Is Disney Stock a Buy Now as Trump Tones Down Trade War Rhetoric?
With a year-to-date loss of 19.4% as of April 23, Disney (DIS) is among the bottom five constituents of the Dow Jones Industrial Average Index ($DOWI). Disney has been a consistent underperformer over the last few years, and while the stock's returns were in line with broader market last year, it underperformed in the previous three years.
In response to underperformance under former CEO Bob Chapek, Disney brought back his predecessor, Bob Iger, to head the company in November 2022. The stock initially rose following the announcement, but now trades below the levels when Iger took over.
To be sure, it isn't fair to blame Iger's policies for Disney's woes. If anything, under his leadership, we have seen some noticeable improvements in the company's performance, particularly in the streaming business. Specifically, Disney posted adjusted EPS of $1.76 in fiscal Q1 2025 that ended on Dec. 28, 2024, compared to $0.99 in the corresponding quarter in the fiscal year 2023, which was the first reported quarter after Iger's return.
Why Has Disney Stock Dropped?
The recent fall in Disney stock has been primarily due to concerns over President Donald Trump's policies taking a toll on its business. Economists raised the odds of a U.S. recession amid the U.S.-China trade war, and the rising fears of a recession are hurting stocks like DIS. Additionally, there are concerns over China retaliating against U.S. businesses, some of which we are already witnessing. For instance, China has restricted the imports of Hollywood movies.
Disney operates two of its theme parks in the region - one in Shanghai and the other in Hong Kong. So far, China hasn't acted against these, but fears over Disney's business suffering in China are not unfounded, as in general, Chinese consumers are increasingly shunning U.S. brands like Nike (NKE), Apple (AAPL), Starbucks (SBUX), and Ford (F) for domestic alternatives. While Disney's prospects in China look relatively immune compared to these companies, it is still a risk that investors should be mindful of.
Looking stateside, consumer sentiment has nosedived over the last couple of months while recession risks have spiked. Even if the U.S. economy can fend off a recession, the slowdown in consumer spending, particularly discretionary spending, is quite palpable. An economic slowdown and tepid consumer spending could hurt Disney's parks business.
As Bernstein analyst Laurent Yoon aptly said, 'When the economy is not doing well, the parks' performance tends to follow that trend.' As for streaming, Disney might not have the same moat as Netflix (NFLX), whose business looks a lot more immune to a recession and might not be the first on the chopping block for most users.
Moreover, the tourism industry – both domestic and international – could be a casualty of the trade war. A Bankrate survey in March showed that compared to 2024, fewer Americans are planning a summer vacation this year. International tourism looks even more vulnerable, and foreign tourists to the U.S. fell in double digits in March. International tourists are a key profitability driver for Disney parks as they, on average, tend to stay longer and spend more than domestic tourists.
Disney Stock Forecast
Wall Street analysts are, however, quite upbeat on Disney, and of the 29 analysts actively covering the stock, 21 rate it as a 'Strong Buy' while two rate it as a 'Moderate Buy.' The remaining six analysts rate it as a 'Hold' or some equivalent.
Is Disney Stock a Buy?
While Disney's earnings have grown significantly over the last two years, its share price has sagged, which has led to a contraction of its trading multiples. Specifically, the stock now trades at a forward price-earnings (P/E) multiple of 15.4x, which is at a discount to the average S&P 500 Index ($SPX) constituent.
While Disney might see some earnings downgrades amid the tariff and economic uncertainty, I find the multiples attractive here. Disney has been testing investors' patience for the last few years, and just when it seemed the company had its house in order with the streaming business becoming profitable, it has been hit by the trade war.
The Trump administration has dropped multiple hints of reconciliation with China even as the world's second-largest economy has denied any ongoing trade talks with the U.S., insisting on the withdrawal of what it calls 'unilateral' tariffs. There is no easy fix for the U.S.-China tariff war, but these fears should eventually abate, and at these levels, the downside looks quite limited for DIS stock given the valuation comfort.
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