On November 28, 2023, The Walt Disney Co (DIS, Financial) experienced a slight downturn of 2.81% in its stock price, settling at $92.5 per share. Despite this daily fluctuation, the company has seen a 9.9% gain over the past three months. With an Earnings Per Share (EPS) of $1.28, investors are contemplating whether The Walt Disney Co is significantly undervalued. The following analysis aims to shed light on this question, evaluating the company's financial health and potential for future growth.
Company Overview
The Walt Disney Co, a household name with a storied history, is the proprietor of some of the world's most beloved characters, from Mickey Mouse to Luke Skywalker. These iconic figures are at the heart of Disney's theme parks globally. The company's operations span live-action and animated films through renowned studios like Pixar, Marvel, and Lucasfilm. Additionally, Disney oversees media networks including ESPN and various TV production studios. Following strategic moves into the streaming space with the acquisition of Hulu and the launch of Disney+ and ESPN+, The Walt Disney Co has amassed over 235 million subscribers as of September 2022, a significant leap from just under 64 million in December 2019. This shift underscores Disney's evolution into a more streaming-centric enterprise.
The comparison between the current stock price and the GF Value—an estimate of the stock's fair value—serves as a cornerstone for our in-depth valuation analysis.
Understanding the GF Value
The GF Value is a unique valuation tool that calculates the intrinsic value of a stock based on historical trading multiples, an adjustment factor reflecting the company's past performance and growth, and projected future business performance. The GF Value Line, visible on our summary page, represents the fair value at which the stock should ideally trade. If a stock's price significantly surpasses the GF Value Line, it may be overvalued, suggesting a potential decline in future returns. Conversely, a stock price well below the GF Value Line could indicate undervaluation, with an expectation of higher future returns.
Based on GuruFocus' proprietary valuation method, The Walt Disney Co (DIS, Financial) is considered significantly undervalued. The company's market cap stands at $165.30 billion, and the GF Value estimates its fair value at a higher figure. This discrepancy suggests that The Walt Disney Co's stock could offer substantial long-term returns, outpacing its business growth.
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Financial Strength and Stability
Investing in companies with robust financial strength is crucial to mitigate the risk of capital loss. The Walt Disney Co's cash-to-debt ratio of 0.31 is lower than 70.08% of its peers in the Media - Diversified industry. This ratio, along with the interest coverage, is a vital indicator of financial health. GuruFocus assigns The Walt Disney Co a financial strength rating of 6 out of 10, signifying a fair position in terms of financial stability.
Profitability and Growth Prospects
Consistent profitability over time equates to reduced investment risk. The Walt Disney Co has maintained profitability for 9 out of the past 10 years, with a notable operating margin of 10.12%, surpassing 71.14% of its industry counterparts. This profitability, coupled with an annual revenue of $88.90 billion and an EPS of $1.28, secures The Walt Disney Co a profitability rank of 7 out of 10.
The company's growth is a pivotal valuation factor. The Walt Disney Co's 3-year average annual revenue growth rate of 10.3% outperforms 76.1% of industry players. Moreover, its 3-year average EBITDA growth rate of 30.1% ranks higher than 78.47% of competitors in the Media - Diversified industry, highlighting its strong growth potential.
Return on Invested Capital vs. Weighted Average Cost of Capital
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to gauge profitability. The Walt Disney Co's ROIC of 3.48 is currently below its WACC of 10.69, suggesting that it is not generating sufficient returns relative to the capital costs. This metric is an area for investors to monitor closely.
Final Thoughts
In conclusion, The Walt Disney Co (DIS, Financial) appears to be significantly undervalued based on GuruFocus' analysis. The company's financial condition is fair, and its profitability is commendable. Its growth trajectory is impressive, ranking higher than many peers in the industry. For a deeper dive into The Walt Disney Co's financials, interested parties can view its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
