Walt Disney Co

The Walt Disney Company (NYSE: DIS) is a worldwide entertainment company. Disney Parks, Experiences, and Products are two of the company's segments (DPEP). The DMED sector is responsible for the company's global film and episodic television content development and distribution. Admissions to theme parks, food, beverage, and merchandise sales at the company's theme parks and resorts, cruise vacations, sales and rentals of vacation club properties, royalties from licensing its intellectual properties (IP) for use on consumer goods, and the sale of branded merchandise are all part of the DPEP segment's business.

Latest News

• Quarterly result announcement: The Walt Disney Co. on 11^th May 2022, announced its second-quarter 2022 financial results, which ended the quarter with strong results including fantastic performance in both the segments of the company.

Q2 FY22 Financial results

• Increase in Overall Revenue: Revenue for the company increased to USD 19.25 billion for the quarter compared to USD 15.61 billion for the same period in FY21. Despite a USD 1.0 billion reduction in the amount due to the customer early termination license agreements for film and television content delivered in previous years for the Company, revenues for the quarter and six months grew 23 percent, and 29 percent, respectively.
• Disney media and entertainment Distribution:

5. Sales for domestic and international channels: Domestic Channel sales climbed 8% to USD 5.8 billion in the quarter while operating income increased 3% to USD 2.3 billion. Higher operating income in Broadcasting was somewhat offset by decreased operating income in Cable, resulting in an increase in operating income. International Channels revenues fell 3% to USD 1.3 billion in the quarter while operating income dropped 30% to USD 0.2 billion. Lower affiliate revenue and higher programming and production expenses lowered operating profits, which were slightly offset by increased advertising revenue.
6. Average monthly revenue per subscriber: Due to an increase in retail pricing and a lower mix of wholesale subscribers, the average monthly revenue per paid subscriber for domestic and international Disney+ increased from USD 6.01 to USD 6.32 and USD 5.14 to USD 6.35, respectively, partially offset by a higher mix of subscribers to multi-product offerings. Due to debuts in new areas with higher average rates and greater per-subscriber advertising-income, the average monthly revenue per paid subscriber for Disney+ Hotstar climbed from USD 0.49 to USD 0.76, partially offset by a higher proportion of wholesale subscribers.

• Disney Park experience and products: Revenues from Disney Parks, Experiences, and Products grew to USD 6.7 billion in the quarter, up from USD 3.2 billion the year before. The segment's operational performance improved to USD 1.8 billion from a loss of USD 0.4 billion the previous quarter. Higher volumes and greater guest spending drove operating income growth at the company’s domestic parks and experiences, which was slightly offset by higher expenses.
• Massive increase in Tax-liability: Effective tax rate for the income on operations ending the second quarter was 45.85% compared to only 8.8% a year ago for the same period. Higher effective tax rates on overseas earnings, as well as the impact of tax regulations published in the second quarter that limited the company's ability to use some foreign tax credits, contributed to the rise in tax.
• Liquidity position: The cash provided by operations for fiscal 2022 grew from USD 1.5 billion to USD 1.6 billion over the previous year. Greater operational income and lower severance payments balance higher spending for film and television content and a partial payment for the Content License Early Termination, resulting in an increase. While Cash and cash, equivalents decreased from USD15.95 billion to USD 13.27 billion for the second quarter of 2022.

Key Risk

• Strong Competition: Alternative producers of similar products and services, as well as other types of entertainment, compete directly with DIS. The company's chances may be jeopardized if the rivalry heats up any further.
• Continued Impact of COVID-19 Pandemic: The COVID-19 epidemic wreaked havoc on the entertainment sector, which DIS serves. Lockdowns and travel restrictions intended to stop the virus from spreading caused a dramatic drop-in worldwide business activity. The company's financials may suffer if the negative trend continues.
  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

Source: REFINITIV, Analysis: Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation

DIS's stock price has fallen 32.88% in the past six months and is currently leaning towards the lower side of its 52-week range of USD 99.47 to USD 187.58. DIS stock is under a long-term bearish cycle with the current price below both short-term (50-day) SMA and long-term (200-day) SMA. RSI has formed a bullish divergence on the daily time frame chart given below, indicating signs of a trend reversal. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 145.44.

Considering the strong topline performance for Q2 FY22, technical analysis, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the current price of USD 106.54 as of 17^th May 2022, up 1.29% at 08:00 AM PDT.

One-year technical chart as of 17^th May 2022, at 08:00 AM PDT. Source: REFINITIV. Analysis by Kalkine group

Technical Analysis Summary

* Current price as of 17^th May 2022, at 08:00 AM PDT.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.