The leaders in streaming services, such as Netflix (NFLX) , Amazon (AMZN) , Apple (AAPL) and the various cable companies, tend to be strong on infrastructure but weak on content. Disney (DIS) has always been the opposite situation.
Disney may have the best content in the world, especially when it comes to children, but it has not been able to offer the right infrastructure for its content. That is changing now that the House of Mouse has announced its Disney+ streaming service.
This is a major pivot for Disney and the analysts are very upbeat about the potential but aren't quite sure how to value it. At least one major analyst believes there is potential for 30 million subscribers to Disney+ by the end of 2024.
There are various price target hikes and earnings estimate increases, which are just guesses at this point, but the important thing to keep in mind is that analysts tend to move incrementally. Usually, they don't give their best-case scenario initially. They will look to raise their estimates and price targets over time as the company shows that it can execute in a new area.
Disney has always been a company that has attracted strong opinions. The bears don't think a premium valuation is warranted while the bulls focus on innovation, growth and new offerings.
Estimates are going up for Disney and that is reflected in the move that started at around $108 on March 25 to over $117 Thursday. The stock is a bit extended after a V-shaped move, but this is now a story about growth in the streaming business. As we see from Netflix, valuations can become much more extreme when streaming growth is accelerating.
Currently Disney trades with a trailing P/E multiple of 17x and has slightly down to flat EPS growth expected for the next two years. That is no great bargain, although if there are upside surprises to those estimates then this stock has good potential for new all-time highs.
Disney currently needs some rest. However, if you are optimistic about its Disney+ service then the $115 area are is probably a good place to make an initial bet. If Disney can execute and analysts start raising projections then this will be a good long-term hold.