Disney looks cheap given long-term streaming potential

Disney (DIS) and the broader basket of reopening plays have felt mounting pressure amid the ongoing Omicron variant outbreak. For many Disney shareholders, it’s a frustrating time, given many had forecasted theme park capacity to improve meaningfully in the new year. The pandemic remains incredibly uncertain, and it’s tough to say just when Disney will get its parks business back into shape.

In due time, the pandemic will end, and parks will be a solid contributor once again. Until then, Disney has other growth levers it can pull to adapt to this new normal. For that reason, I remain incredibly bullish on Disney and a potential Disney+ growth reinvigoration as other investors continue throwing in the towel on one of the bluest blue chips on the S&P 500 today.

Arguably, most of the attention has been on the company’s video-streaming service, Disney+. Growth in the service is undoubtedly showing signs of waning in the latest round of quarterly results. Indeed, it was only a matter of time before user growth would begin to grind to a halt. The latest slowdown in Disney+’s growth is discouraging and may appear to some as the start of a concerning trend.

Disney+ turnaround potential
With CEO Bob Chapek and company continuing to funnel impressive amounts in the creation of more quality content, the Disney+ growth slowdown could prove to be short-lived.

Content droughts happen to all firms in the streaming business.

This is arguably Disney’s first big slowdown, but things are bound to pick up in a big way, with a strong content line-up for 2022, and an incredible Hulu/Disney+/ESPN+ streaming bundle whose value proposition will be hard to stack up against.

The much-anticipated Star Wars series, The Book of Boba Fett, launches on December 29, 2021. The series based on the popular galactic bounty hunter could be a hit and reignite subscriber growth at Disney+.

With other smash hits in the Disney+ pipeline poised to release gradually over the next year, I think it’s just lazy to ditch DIS stock with the conclusion that its streaming service’s best days are behind it.

Disney Is Ready for the Next Step in the Streaming Wars
Can new releases charge Disney+ as it looks to catch up to top rival Netflix (NFLX)?

I certainly would not rule it out. In any case, DIS stock looks way too cheap at current valuations. The stock is fresh off a brutal 30% peak-to-trough decline, now off around 25% from its high just north of $200 per share.

Sure, Squid Game may have driven Netflix’s latest run, but the tides could easily turn as Disney steps up to the plate with its strong line-up of streaming content. At current valuations, my money would be on Disney over Netflix, as the video-streaming wars take it to the next level in 2022.

As the streaming market matures, strength could move across top dogs in that Netflix and Disney+ could flip-flop based on what’s new and hot at any given moment.

Wall Street’s take
Turning to Wall Street, Disney has a Moderate Buy consensus rating, based on 15 Buys and six Holds assigned in the past three months. The average Disney stock forecast of $196.21 implies 26.1% upside potential.

Analyst price targets range from a low of $168.00 per share to a high of $220.00 per share.

The bottom line on Disney stock
Disney stock is down and out. Omicron is a prominent risk that could continue hurting the parks business. That said, any resurgence in COVID-19 that could fuel a return to the home could act as a meaningful jolt for Disney+. I don’t think such a potential tailwind is fully reflected in DIS stock at $155 and change.

While Netflix has a solid line-up for the coming quarter, it’s arguable that Disney+ has future releases that seem slightly stronger. So, between the two streamers, I’d argue that DIS stock is, by far, the better bargain for those seeking outperformance in the new year. NASDAQ