Last year, Walt Disney Company (DIS) stock fell to its lowest level since 2014. While the shares recovered from those depths and eked out a 4% gain on the year, its returns trailed that of the S&P 500 Index ($SPX) by a massive 20 percentage points over the course of 2023.
From disappointing box office releases to continued losses in the streaming business and a proxy battle with activist investor Nelson Peltz, Disney was mostly in the news for the wrong reasons last year. Disney’s underperformance wasn’t limited to 2023 alone, though - the stock's returns have trailed that of the S&P 500 over the last 3 years, 5 years, and 10 years. That’s not the kind of performance that investors would generally associate with a company like Disney, which is among the most iconic global brands and is the proverbial “cradle to grave” business – offering something to every age group.
Could Disney be a good long-term investment after trailing the market for a decade - especially now that the stock has formed a “golden cross,” which is a bullish technical indicator? Here’s the 2025 forecast for the entertainment giant, beginning with the changes its CEO Bob Iger has initiated at the company.
Bob Iger Tries to Transform Disney
Ever since Bob Iger returned as Disney’s CEO in late 2022, he has been working to transform the business. He has announced massive cost cuts (including layoffs), mandated a return to the office, vowed to invest billions of dollars in the Parks segment, launched ESPN Bet in partnership with Penn Entertainment (PENN), and shifted the company’s focus from chasing streaming subscribers to gunning for profitability. Disney also withdrew its long-term streaming guidance, in a sign that the metric is no longer that important for the company.
Iger has reorganized the reporting structure, as well, and Disney now has three segments: Disney Entertainment, ESPN, and Disney Parks Experiences and Products. The change reflects Iger’s starkly different vision of the company than his predecessor Bob Chapek, who put streaming at the heart of Disney.
Iger has also been open to selling the company’s linear TV assets - but at the staff town hall last November, he reportedly downplayed his previous comments and said that the business offers “strategic value” and is "pretty significant.” That said, he has sounded quite open to strategic actions to create shareholder value. During the fiscal Q4 2023 earnings call in November, Iger said that Disney is “considering our options” in India, where it offers the Disney+ Hotstar, which has been a money-losing proposition.
Despite the various actions announced by Iger, the stock has barely moved since he took over as the CEO.
Disney Stock 2025 Forecast: Will Iger’s Plan Work Out?
Iger has reiterated that Disney’s streaming business is on track to reach breakeven by the end of this fiscal year. If things go according to plan, the streaming business should become a net contributor to the bottom line in 2025, which would be a reversal from the unit's perennial losses - including a $387 million operating loss in the most recent quarter.
The company is also looking to launch a direct-to-consumer platform for ESPN by 2025. Disney could also decide on its India business by then, and is said to be in talks with Indian conglomerate Reliance for a stake sale.
Plus, Disney has further expanded the scope of cost cuts, and said that it is targeting structural cost savings of $7.5 billion, which is $2 billion higher than the previous forecast. These cost cuts should help improve Disney’s earnings over the next couple of years, and markets should also eventually appreciate their impact.
How High Could DIS Stock Go By 2025?
The current Street-high target price for Disney (usually the prediction for the next 1 year) is $120, which is 32% above current prices. I believe that if Disney can deliver on the projected cost cuts and streaming profitability, the company’s earnings should increase considerably by 2025.
Current consensus estimates call for growth of 17.3% and 19.9% in Disney’s earnings per share in fiscal years 2024 and 2025, respectively.
If Disney can indeed execute well, and also deliver a few box-office blockbusters by 2025, it will help improve sentiment around the stock and lead to an expansion in its valuation multiples. The shares currently trade at a next-12 months price-to-earnings multiple of 20.7x, which is lower than the average multiple for the last five years.
Overall, I find Disney’s 2025 forecast quite positive, and would double down my bet if the shares fall more from these levels.
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.
