Disney Earnings: Firm Strong on All the Most Important Fronts and Poised to Accelerate

Key Morningstar Metrics for Walt Disney

• Fair Value Estimate

  : $125.00

• Morningstar Rating

  : ★★★★

• Morningstar Economic Moat Rating

  : Wide

• Morningstar Uncertainty Rating

  : Medium

What We Thought of Disney’s Earnings

Walt Disney DIS had a fantastic fiscal second quarter. It sees no sign of consumer weakness and expects experiences growth to accelerate. Total sales grew 6.5% year over year. Preliminary costs to support new experiences and higher programming costs led to a 50-basis-point contraction in operating margin.

Why it matters: Experiences results are by far the most consequential to Disney’s valuation. Beyond experiences, we look for the streaming business to enhance profitability while continuing to grow at a healthy clip, and for sports to merely be stable. Disney delivered on all fronts.

The bottom line: We raise our fair value estimate to $125 per share from $120 to account for a better near-term consumer backdrop than we anticipated.

• The benefits of Disney’s wide moat are shining through, as its assets boost all parts of its business, something most peers can’t rely on as they transition to streaming or try to attract customers for experiences and vacations.

Big picture: Experiences results are set to accelerate following second-quarter sales growth of 7% and operating income growth of 5%. Domestic theme park attendance should accelerate after a 1% decline in the second quarter and stagnation over the past year.

• A drop in international tourism has quelled domestic park attendance since last spring. With Disney set to lap the onset of that decline and the 2025 opening of Universal’s Epic theme park in Orlando, Florida, attendance trends will start to enhance rather than detract from growth.
• In March, World of Frozen opened at Disneyland Paris, and the Disney Adventure cruise ship took its maiden voyage. They collectively contributed fewer than three weeks of revenue, and both incurred pre-opening costs. New attractions will continue launching over the next several years.

Key stats: Disney+ and Hulu streaming revenue grew 13% year over year, and the operating margin reached a new high of 11%, up more than 4 percentage points year over year and 2 points sequentially.