Disney Stock: Intriguing Value amid Negativity Storm

Disney (DIS) stock has looks oversold over the past few weeks. Things went from bad to ugly last week, as the stock fell in sync with Netflix (NFLX), which experienced its first round of subscriber losses in around a decade.

Exacerbating the downfall in Disney stock was the broader market sell-off, and perfect storm of negative headlines surrounding the “Don’t Say Gay” bill.

With stocks retesting their March 2022 lows over fears of a rate-hike-induced recession, and a worsening of the crisis going on in Ukraine, investors have been quick to throw in the towel on DIS stock.

What many investors may be neglecting, though, are some of the potential positives that headlines seem to be ignoring these days. I’m bullish on Disney.

Headwinds Won’t Last Forever

Near- and medium-term headwinds tend to overpower strong long-term fundamentals.

Though streaming is no longer the “sexy” growth market to be in anymore, I do think the reaction in DIS stock was overblown. If anything, weakness in Netflix signals that the top spot in streaming is up for grabs.

In that regard, Disney+ looks like a contender to steal the spot with its enviable library of content, and incredible pipeline.

Though streaming could cool as we run face-first into a rate-induced economic slowdown or recession, there is reason to believe that Disney+ can take share in the market.

I think Disney is in better shape than Netflix to make a run for the top. Though the passing of the torch has not yet happened, I would not be surprised if Disney+ and Hulu were to close the gap on Netflix, regardless of what type of market environment we’re put in come 2023.

The power of the Disney brand will shine through.

Black and Blue

Things have spiraled out of control of late. For a blue-chip darling like Disney, it’s a scary time for shareholders, with the stock now down around 42% from its peak.

The DeSantis-Disney battle brings forth a cloud of uncertainty for its DisneyWorld theme park. Add the ongoing COVID-19 pandemic, and the potential for future capacity reductions into the equation, and there are more than a handful of reasons to throw in the towel on Disney stock.

Fortunately, I think that Disney+ and theme parks will have an opportunity to flex their muscles again, possibly once the worst of recession fears are baked in.

Currently, investors are bracing themselves for a rate-hike storm that could jeopardize the economy’s robust growth.

Recession Risk?

Though the U.S. Federal Reserve has been keen on healing employment, it may have no choice but to raise the bar on rates while stomaching some reversal in employment trends.

Disney stock doesn’t fare too well during such downturns, when consumers are forced to tighten the budget. After having done nothing in five years, it seems like nothing short of a bear-case scenario is baked in, and for good reason. When a barrage of bad news strikes at once, there are negative catalysts to fuel the negative momentum.

Instead of worrying about the fate of DisneyWorld’s special status or Netflix’s weak results, it seems wiser to focus on the long-term future of parks and the streaming platform.

With potential bundling opportunities across services, it wouldn’t be out of the ordinary to see Netflix be dethroned by Disney in as little as a few years. Disney has a lot to offer, and it can provide a value proposition in the streaming space that could prove difficult to match.

Sure, Disney+ will face bumps in the road, as Netflix will once the pain of higher rates is felt.

Regardless, it’s likely the fierce competition from Disney that may have Netflix stock on its knees this year.

CEO Bob Chapek has done many things right with Disney’s streaming push, but the true rewards from the effort are unlikely to be realized over a near- or even medium-term basis.

Wall Street’s Take

According to TipRanks, DIS stock comes in as a Strong Buy. Out of 18 analyst ratings, there are 16 Buy recommendations, and five Hold recommendations.

The average Disney price target is $184.95, implying 62.6% upside potential. Analyst price targets range from a low of $140 per share to a high of $229 per share.

Bottom Line on Disney Stock

Disney stock has already crashed so violently. It’s been non-stop negatives hitting the house of mouse. Eventually, the negative catalysts will subside, and the lack of such could propel the stock higher.

For now, the market views shares as guilty until proven innocent. What will it take to reverse course? Perhaps better-than-feared numbers out of streaming, and a more upbeat guide.

Even if a recession weighs on the streaming industry through 2023, look for Disney to continue putting its foot on the gas to take share.

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