The headline read Update: Walt Disney (NYSE:DIS) Stock Gained 58% In The Last Five Years.
Although that might seem like an average return for one of America’s most iconic companies, it was 20 percentage points higher than the market-weighted average returns of stocks trading on U.S. exchanges, not including dividends.
In other words, Disney stock outperformed the average of around 3,700 stocks between May 2014 and May 2019. That’s not too shabby for an equity that was dead money for three of those years.
Including dividends, DIS stock generated an annual total return over the past five years through June 12 of 11.56%. That’s 135 basis points higher than the exchange-traded fund iShares Core S&P Total U.S. Stock Market ETF (NYSEARCA:ITOT).
So, on balance, it’s hard to argue with the performance of the Disney stock price over the past half-decade.
Where does it go from here?
DIS stock took approximately 26 months to double from $50 in December 2012, to $100 in February 2015. Disney stock is well over four years into its journey toward $200 after first eclipsing the three-digit barrier. It begs the question how much longer until shares finally reach the next obvious psychological target.
Here’s my simplistic view on the subject.
Disney Stock Gets to $200 in 2 Years
First of all, were DIS stock to get to $200 in 24 months, it would have taken nearly six-and-a-half years to do so from February 2015. That’s almost three times as long as it took to get to $100. Given the time elapsed between December 2012 and June 2021, Disney at that point would be a much larger company.
I don’t think investors should read anything into that. It’s much harder to move a $400-billion market capitalization than it is a company one quarter the size.
It is what it is.
Naturally, I like most investors will point to the near-term success or failure of Disney+. This is the company’s soon-to-be-launched (Nov. 12) streaming service intended to take market share from Netflix (NASDAQ:NFLX). At the same time, Disney+ provides loyal customers with another venue to view Disney content.
Costing $6.99 per month or $5.83 per month if you pay for an entire year, the service is kid-friendly with no R-rated content allowed. Marvel, Star Wars, Pixar, Avengers, they’ll all be available on Disney+. And it will all be downloadable.
Families are getting a lot of good content in one place.
Morgan Stanley recently raised its target for the Disney stock price to $160 from $135 based on higher forecasts for Disney+. “We forecast over 130 million global OTT subscribers by 2024,” stated the investment bank’s recent note.
It also projected that Disney’s direct-to-consumer formats (ESPN+, Disney+) would become profitable by 2024.
So, based on its history of share price growth, combined with some of Morgan Stanley’s projections, I’d say it’s got about a one in five chance of hitting $200 within 24 months.
It Gets There in 4 Years
For the Disney stock price to hit $200 within 48 months, DIS must generate an annual return of 10.3%. That’s a reasonable goal if the Magic Kingdom’s streaming service converts 130 million subscribers by 2024.
I’d say it’s got a better than 50% chance of hitting $200 by June 2023.
It Arrives in a Disappointing 6 Years
One of two things will slow the journey to $200 for DIS stock.
First, let’s say Disney+ fails to grab 100 million subscribers by 2024. I would think investors would view that as a colossal failure, putting a significant drag on Disney stock. After all, streaming failure would also mean lower cash flow and debt repayment.
That brings me to the second reason it might not get there.
At the end of September, before Disney completed its purchase of parts of 21st Century Fox, it had $20.9 billion in debt. At the end of March, after completing the acquisition, it finished the quarter with $58 billion in debt. That’s a manageable 24% of its market cap.
Should Disney+ be a flop, it will have a lot of debt on its books without nearly as much cash flow to make its interest payments and repayment of debt. Primarily, the reason DIS management pursued Fox was for the content it could use for Disney+.
If Disney+ fails, Disney stock might not make it $200 in eight years, let alone six.
The Bottom Line on Disney Stock
If I were to guess when DIS stock will hit $200, I’d say sometime in the second half of 2022. But keep in mind that’s based on nothing more than my belief that Disney+ will be a considerable success.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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