Will 2025 be the year Walt Disney Company (DIS) finally turns things around? After a solid performance, especially in the second half of 2024, I’m optimistic about Disney’s outlook for this year. A lot of my bullish outlook is driven by key factors: the streaming business turning profitable despite the decline in linear TV, strong cash flow projections for the next few years, and a stock that, while not exactly cheap, isn’t overpriced either. Overall, I see a solid foundation for growth moving forward.
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In this article, I’ll break down these three main reasons why I believe Disney stock is a compelling investment for 2025.
1. DIS Transitions from Linear TV to Profitable Streaming
A key factor in Disney’s more positive outlook for 2025 is how well the company is managing its transition from declining linear TV to its growing streaming direct-to-consumer (DTC) business.
The DTC segment, in particular, reached profitability for the first time in 2024 and is now on track to outpace the declining profits from Disney’s linear networks, which still generate the largest portion of the Entertainment division’s earnings.
In Q4, Disney’s DTC business continued to show strong results, posting $321 million in operating income—an impressive $700 million increase compared to the same quarter last year. A big part of this growth came from the success of the ad-supported tiers on Disney+, which grew by 4% year-over-year. These more affordable subscription options now make up 37% of the DTC business. This is a great sign for Disney, especially given recent price hikes. Disney has managed to keep advertisers engaged while still growing its streaming base.
Between 2023 and the first half of 2024, Disney was losing billions in its streaming division. So, hitting profitability is a huge milestone. This shift is especially significant because there was initial skepticism about the future of cable TV. Now, Disney’s streaming business is scaling up to become one of the largest in the world. By the end of the latest quarter, Disney had 174 million total subscriptions between Disney+ Core and Hulu, with more than 20 million paid Disney+ Core subscribers—an increase of 4.4 million from the previous quarter.
2. Disney Drives Cash Flow Growth
Another key reason for a positive outlook on Disney stock is the company’s impressive cash flow performance in 2024. In its most recent quarter, Disney reported $5.52 billion in cash from operations, a 15% year-over-year increase, along with $4 billion in free cash flow—an 18% jump from last year. Looking at the full year, Disney’s cash from operations grew by a massive 42%, reaching $13.9 billion, while free cash flow surged 75%, to $8.56 billion compared to the same period in 2023.
The outlook for 2025 is even brighter. Disney has guided for $15 billion in cash from operations next year, signaling that this growth is just getting started. This marks a strong recovery after the pandemic hit, which had a significant impact on Disney’s revenue, profits, and cash flow.
Now, with the business bouncing back in full force, I believe Disney is poised to emerge even stronger than before. The shift from cable TV to streaming is a major part of this. As more people turn to streaming for content, Disney stands to benefit from both higher content consumption and growing profits, which will drive even stronger cash flows in the years ahead.
3. Disney’s Valuation Is Not Cheap, but Is Justifiable
There’s been some back-and-forth between bulls and bears over whether Disney deserves to trade at a premium compared to its industry peers. While it’s clear Disney’s valuation isn’t exactly cheap, it’s still pretty reasonable when you dig into the details.
Looking at the company’s long-term guidance from its most recent quarter, Disney expects to deliver double-digit EPS growth through 2027. Specifically, consensus estimates project 9% EPS growth for Fiscal 2025, 12.3% for Fiscal 2026, and 11.3% for Fiscal 2027. This would give Disney an overall compound annual growth rate (CAGR) of about 11.2%. With a projected P/E ratio of 20.5x for 2025, that puts Disney’s PEG ratio at around 2.3x. While this isn’t exactly cheap, it’s not overly stretched either—especially given the company’s growth potential and massive intellectual property (IP) portfolio’s intangible value.
Of course, the PEG ratio is just one way to evaluate value. For instance, analyst Hamilton Faber from Redburn-Atlantic recently upgraded Disney stock from Hold to Buy. He pointed out that the company could justify trading at a 24x P/E multiple for Fiscal 2026, and the company moving at a 10% premium to the S&P 500 (SPY), based on the bottom-line growth from streaming offsetting the declines in linear TV—a long-standing structural headwind for the company.
Is Disney a Buy, Sell, or Hold?
The majority of analysts covering Disney currently rate the stock as a Moderate Buy. Out of 23 analysts, 17 recommend a buy, while six have a neutral view. The average price target for Disney is $126.84, implying a 16% upside from its current share price.
Key Takeaway
Disney seems to be entering a new phase, with many of its past struggles finally behind it. While the surge in the second half of last year suggests the market is already pricing in some of Disney’s expected growth for 2025 and beyond, there’s still potential for even more upside.
With profitability expected to grow strongly in the coming years, leading to solid cash flow generation, Disney is on track to return more cash to shareholders. This should create strong momentum for the stock and likely keep it trending upward.
