2021 has been a difficult year for Disney (NYSE: DIS).
The entertainment giant’s share is down 15% year-to-date, far behind the S&P 500gain of 26%. Slower growth at Disney + and the resurgence of the delta coronavirus variant helped torch what had looked like a promising year for the family entertainment company.
Disney might be down at this point, but it would be a mistake to count it. There are a number of catalysts that could push the stock up in 2022, including a COVID upturn, although the omicron variant appears to be spoiling that hope for now.
The stock hit an all-time high of $ 203.02 in March. At this point, coming back to $ 200 per share next year would represent a 30% gain, a significant one-year rally for a blue chip stock. Let’s take a look at some of the reasons it might hit $ 200 and why it might not.
Next stop: $ 200?
Disney shares fell after its report on fourth quarter FY2021 earnings in November, as the company missed earnings and earnings estimates and added just 2.1 million Disney + subscribers, showing the meteoric growth of the streaming service known at the start of the pandemic has faded.
However, growth in Disney + subscribers could accelerate next year, as the list of upcoming content appears to be stacked. Among the expected releases, several Star wars and Marvel-themed shows including Boba Fett’s book, Obi wan kenobi, she-hulk, and Ms. marvel. In addition, new animated content is coming to the platform, including Buck Wild’s Glacial Adventures and a live remake of Pinocchio. Netflix demonstrated the close relationship between new content and growth in subscriber numbers, and that should ring true for Disney + as well, especially as production efforts have been slowed by the pandemic, which has also created an increase unexpected demand.
In addition, 2022 should continue to mark a rebound for its theme parks, whose performance remains below pre-pandemic levels. Assuming the omicron threat subsides by spring, theme park traffic is expected to exceed 2021, especially as the United States just reopened international travel in November and international visitors make up a significant portion of guests at Walt Disney World in Florida. Likewise, the three theme parks in Asia would benefit from an increase in vaccinations and a easing of the pandemic as regulations in China and Japan have been particularly strict.
Finally, the action seems valued for a comeback. Profits are expected to increase as theme parks recover, and the growth of Disney + is expected to help the company earn a higher multiple, similar to Netflix. Analysts expect the company to earn $ 5.09 per share (EPS) in fiscal 2023, valuing it at a forward price-to-earnings ratio of 30, which seems like a reasonable estimate for a company with EPS above $ 7 per share before the pandemic.
Why might it not
After an incredible race over the past two years which has seen the S&P 500 rose over 45%, there are a number of signs that the broader market has expanded too far, including the recent Federal Reserve announcement that it plans to raise interest rates three times next year and cut its quantitative easing program, which has negatively impacted equity growth in recent weeks.
While Disney is not a growth stock in the traditional sense, its shift to a streaming-focused business away from its broadcast and cable core means it is sacrificing short-term profits for potential to long term. Linear networks operating income, which was still $ 8.4 billion last year, has fallen 11% and may continue to decline due to cord cuts and pressure on TV advertising .
The challenge for Disney is to grow its streaming business while managing the decline of its traditional media empire, but the latter will always weigh on earnings growth.
Additionally, the COVID situation is fluid and a prolonged outbreak of omicron or some other variant would impact the takeover of Disney theme parks.
Will he see $ 200?
Like the market timeline, it’s nearly impossible to predict year-over-year stock gains, but a number of positive catalysts are in place for Disney, including the expanding content roster for Disney + and a takeover. likely in its theme parks. As long as the company can effectively manage the decline of linear networks, there is a good chance that it will outperform the market in the next five years, especially at its current valuation.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.