Disney is a buy right now, Scotia’s Newman says

Entertainment giant Disney (Disney Stock Quote, Chart, News NYSE:DIS) has seen its share of heartbreak in recent weeks which has erased all those good-time gains over the past 12 months.

But the company is sound and the stock is trading at attractive levels, says Greg Newman of Scotia Wealth.

“This is a name that into 2010 you could buy in the $20s and it’s gone up four-fold, five-fold, six-fold, but you have to have respect on what can happen in downturns in bear markets,” said Newman, senior wealth advisor and director of wealth management for Scotia Wealth, who spoke to BNN Bloomberg on Wednesday.

Disney’s share price had been doing exceptionally well since about this time last year as the hype started to build over the launch of the company’s streaming service, which finally occurred last November 12.

And the reviews so far have been positive.

Where many expected Disney+ to take a bite out of Netflix’s dominant market share, the real test came with the company’s first quarterly report since the launch. Disney’s fiscal Q1 2020 ended December 31, 2019, was delivered in early February, with the company reporting 26.5 million subscribers to Disney+, up from ten million initial sign-ups in early November. Management reported in the February 4 earnings call that the number had climbed to 28.6 million by early February.

“We had a strong first quarter, highlighted by the launch of Disney+, which has exceeded even our greatest expectations,” said Robert A. Iger, Chairman and CEO, in a press release. “Thanks to our incredible collection of brands, outstanding content from our creative engines and state-of-the-art technology, we believe our direct-to-consumer services, including Disney+, ESPN+ and Hulu position us well for continued growth in today’s dynamic media environment.”

The quarter was even a beat on both top and bottom lines, with Disney showing earnings of $1.53 per share on revenue of $20.86 billion. Analysts had been expected $1.44 per share on revenue of $20.79 billion. (All figures in US dollars.) In terms of segments, Disney saw a doubling in its Studio Entertainment revenue to $3.76 billion while its Parks, Experience and Products business grew eight per cent to $7.4 billion and operating income went up nine per cent to $2.3 billion.

“I personally think that Disney is an excellent business,” said Newman. “It’s very hard to model what their earnings are going to be for the next couple of quarters, but at some point investors will really look through that.”

“I think all things being equal, you want to buy it closer to the 100-day, which would be about $96,” he said.

Disney’s management has guided for Disney+ subscribers to hit between 60 million and 90 million by the end of fiscal 2024. By comparison, Netflix recorded 8.76 million new subscribers globally with its last quarterly report in January, bringing its total paid subscribers to 167 million worldwide. Disney closed on Thursday down 13 per cent to $91.81.