Walt Disney (DIS) is back in the legal spotlight after the Unified Patent Court’s Düsseldorf Local Division granted InterDigital a third injunction, this time covering seamless cross device video sharing in Germany and the Netherlands.
For investors, the latest injunction arrives after a mixed stretch for Walt Disney’s stock. The share price is US$107.98, with a 1 month share price return of 10.03% and a 3 month share price return of 8.70%, while the 1 year total shareholder return has declined 6.68%.
Spot opportunities beyond Walt Disney by scanning a hand picked 20 high quality undiscovered gems that share strong fundamentals yet still sit under many investors' radar.After a sharp move to about US$108, investors now have to weigh how much of Walt Disney’s recovery story is already in the share price. Is the recent legal and streaming news mostly priced in, or is there clear upside left on valuation grounds?
Most Popular Narrative: 19.8% Undervalued
At a last close of $107.98, the most followed Walt Disney valuation narrative puts fair value materially higher at $134.63. This frames the recent share price recovery in a very different light.
Disney is a high-quality and innovative company with a proven record of benefitting from disruption, which has been consistently priced as if it were an aging dinosaur. It isn't. Instead, I believe it's undervalued, and once the latest "concern" is crossed out, its share price will start to rise again.
Want to see how a century old entertainment group still underpins a premium profit margin assumption and a full earnings multiple usually linked to faster growing sectors? Curious which revenue mix between streaming, parks and licensing underpins that cash flow path and the discount rate behind the $134.63 mark?
According to alegget, the narrative leans on Walt Disney’s long record of earnings growth across cycles, a profit margin profile that leaves room for improvement from current levels, and a future earnings multiple that assumes the brand and intellectual property portfolio continue to justify a premium over slower growing media companies. It also uses a 9.0% discount rate to bring those projected cash flows back to today, which is a key input in arriving at the $134.63 figure.
Put together, this view implies that the current share price already reflects recent concerns around streaming economics, legal disputes and management change, while giving limited credit to the company’s $98.9b revenue base, $8.6b of net income and its mix of Entertainment, Sports and Experiences assets.
Result: Fair Value of $134.63 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, investors still need to watch legal rulings around Walt Disney intellectual property and any setbacks in streaming profitability targets, as these could quickly weaken this undervaluation case.
Find out about the key risks to this Walt Disney narrative.
Next Steps
If this mix of concerns and optimism around Walt Disney feels finely balanced, do not wait to see how others react before forming an opinion. Weigh the evidence on both sides and review the 3 key rewards and 1 important warning sign.
Looking for more investment ideas beyond Walt Disney?
Walt Disney may already be on your radar, but you do not want to miss other stocks that could fit your goals just as well. Use the Simply Wall Street Screener to quickly spot focused sets of opportunities that match your risk and return preferences across the market.
- Target potential mispricing early by scanning a curated pool of strong cash generators using the 54 high quality undervalued stocks.
- Strengthen the resilience of your portfolio by filtering for companies with robust finances using the list of solid balance sheet and fundamentals (52 results).
- Hunt for quality stories the market may be overlooking by checking the 20 high quality undiscovered gems.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com