Walt Disney (NYSE:DIS) stock has significantly underperformed the broader market indices over the past several years. Further, the ongoing pressure on margins and subscriber growth could restrict the upside potential of the shares of this media and entertainment giant.
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It’s worth highlighting that Disney stock is down about 20% over the past year. Meanwhile, it has declined by 25% in the last three years. Nonetheless, the stock has gained about 50% in the past decade, reflecting an average annual return of nearly 4%.
In comparison, the S&P 500 Index (SPX) has inched up 1% over the past year. Meanwhile, it gained about 37% in three years. In the past decade, SPX has grown at a CAGR of 9.7%, delivering a return of approximately 153%. At the same time, the Nasdaq-100 index (NDX) soared by about 373%, outperforming the Walt Disney stock by a considerable margin.
Challenges Ahead for Disney
While Disney stock disappointed investors with its returns, the near-term challenges could limit the recovery. It’s worth highlighting that Disney’s domestic ARPU (Average Revenue Per User) increased sequentially by 20%, reflecting a price increase. However, what’s alarming is the decline in its domestic subscriber base, which declined on a quarter-over-quarter basis.
On May 25, KeyBanc analyst Brandon Nispel reduced his price target on Disney stock to $107 from $120. Nispel is optimistic about Disney’s long-term prospects and expects it to benefit from its differentiated IP (Intellectual property) and assets.
Further, the analyst recommends a Buy on DIS stock and the firm’s profitability in the direct-to-consumer business to increase, led by higher pricing. Also, he is upbeat about Disney’s $5.5 billion cost reduction plan.
However, Nispel expects Disney+ subscriber growth to remain muted in the short term. Moreover, pressure on domestic park margin compression and ESPN/Hulu overhang will continue to pose challenges.
Is Disney Stock a Buy or a Hold?
While Disney faces headwinds in the near term, the company is optimizing its pricing model to increase subscriber revenue, reduce churn, and reward loyalty. However, analysts are cautiously optimistic about DIS stock. It has received 13 Buy and five Hold recommendations for a Moderate Buy consensus rating.
At the same time, analysts’ 12-month average price target of $123.31 implies 40.19% upside potential from current levels.
According to TipRanks data, the most accurate analyst for DIS stock is Michael Nathanson of MoffettNathanson. Copying his trades on DIS stock and holding each position for one year could result in 65% of your transactions generating a profit, with an average return of 18.38% per trade.
