Disney's second-quarter earnings report shows growth in revenue and operating income, with optimism for the future.
From Morningstar: 2025-05-16 05:03:00
Walt Disney released its second-quarter earnings report on May 7, with revenue and operating income growing 6% year over year. Streaming continues to be profitable, and the company expects a strong second half. Despite concerns about economic conditions, Disney remains optimistic and expects experiences operating income to grow 6%-8% for the year.
Morningstar believes Disney is undervalued even after a 10% rise in stock price. The company’s wide moat rating is supported by its franchises and characters, with a deal announced to bring a Disney park to Abu Dhabi. The fair value estimate for Disney is $120 per share, reflecting a P/E multiple of 23 times the adjusted earnings estimate for 2026.
Disney’s financial health is sound, with a net debt of nearly $40 billion and a 2.4 net debt/EBITDA ratio. Despite higher debt metrics, the company’s free cash flow is expected to remain strong, with over $8 billion generated in fiscal 2024. Financial leverage is expected to improve starting in fiscal 2025, with double-digit average annual growth anticipated thereafter.
There is high uncertainty surrounding Disney due to changes in the media industry. Revenue sources from pay-TV distributors, television advertising, and licensing fees are under pressure. Cord-cutting and decreased linear TV viewership have affected carriage fees and advertising revenue, while changes in the box office have impacted licensing revenue.
Bulls believe Disney’s iconic characters and content library will drive demand for streaming services, with profits expected to rise. The allure of Disney’s parks business is seen as a continuing profit engine. Bears, however, are concerned about the decline of linear television and increased competition for sports rights. The proliferation of streaming platforms may also impact profitability.
Read more at Morningstar: After Earnings, Is Disney Stock a Buy, a Sell, or…