Disney Stock: Could This Dow Jones Top Gainer Keep Going Up?

With a YTD gain of over 25%, Disney DIS is the best-performing Dow Jones Industrial Average ($DOWI) stock this year. DIS stock has delivered double-digit returns, even as the broader Dow Jones has pared its gains and is almost flat for the year.

The outperformance is a welcome reprieve for Disney investors, as the stock hasn’t created much wealth over the last decade, and last year fell to its lowest level since 2014. But as momentum builds in the shares of this entertainment giant, can DIS stock continue to rise? Let's take a closer look.

Why Is Disney Stock Going Up?

There are three main reasons Disney stock has gone up in 2024. These are:

• Disney’s valuations looked quite tempting at the beginning of the year, which laid the stage for a rebound.
• Disney reported a stellar set of numbers in its fiscal Q1 of 2024. Specifically, the company’s adjusted earnings per share (EPS) of $1.22 came in well ahead of the $0.99 that analysts expected. Furthermore, Disney projected full-year EPS to be approximately $4.60, adding that the metric would rise at least 20% YoY.
• Finally, Disney won its proxy battle with Nelson Peltz’s Trian Fund Management as shareholders elected the full board, rejecting Peltz’s nominees. This took away a great deal of uncertainty, and signaled support for Disney CEO Bob Iger's turnaround plan.

DIS Stock Forecast

Wall Street analysts have also gradually turned bullish on Disney stock. Currently, around 81% of analysts covering DIS stock rate it as either a “Strong Buy” or a “Moderate Buy,” while the corresponding number three months ago was 72%.

Disney’s mean target price of $124.57 is 10.3% higher than yesterday’s closing price, while the Street high target price of $145 implies a potential upside of more than 28% over the next 12 months.

Why Disney Stock’s Rally is Far from Over

The rally in Disney stock looks far from over, as the business continues to turn around under Iger. Here is why DIS stock has room to run higher.

Cost cuts and streaming profitability: Disney is working on $7.5 billion in annual cost savings, which Iger said the company is on “track to meet or exceed.” In addition, the company expects its streaming business to turn profitable by the end of this fiscal year, which would mean that the segment will start contributing to the bottom line, rather than dragging it down.

Disney looks to get back on the growth track: Disney is also working on several growth initiatives. During its fiscal Q1 earnings call, it announced the launch of a sports streaming platform jointly with Fox and Warner Bros. Discovery WBD while reiterating a 2025 launch of the ESPN streaming service. Sports streaming could be among the key growth drivers for Disney going forward.

Disney also announced a $1.5 billion investment in Epic Games, which is the publisher of the globally popular video game Fortnite. Commenting on the relationship, Iger said, it will "create a transformational games and entertainment universe that integrates Disney's world-class storytelling into Epic's cultural phenomenon, Fortnite, enabling consumers to play, watch, create, and shop for both digital and physical goods.”

He added that Disney’s entry into video games offers “significant opportunities for growth and expansion.”

Focus on customer service and going back to basics: Disney is going back to the basics - which is entertaining people and creating “magic.” It plans to invest $60 billion in its Parks over the next 10 years to address some of the concerns about service and wait times that many visitors have flagged over the last couple of years. 

The company has decided to cut down on the quantity of movies (especially sequels) that it produces, and is instead focusing on quality. Disney’s box office performance over the last couple of years has been dismal, at best, but as the company prioritizes quality as it did in the past, its box office performance – and by extension, the stock’s perception - should also improve.

Finally, Disney’s valuations still look fair. DIS trades at a next 12-month price-to-earnings multiple of 23.2x, which looks reasonable, and is similar to the earnings CAGR the company is expected to report over the next two fiscal years (until fiscal 2025). 

I see more upside to these earning estimates, which - coupled with some multiple expansion - could mean that Disney stock might continue to reward investors over the next couple of years.

On the date of publication, Mohit Oberoi had a position in: DIS . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.