This is my first article about Disney (DIS). I mean, so far I am not very familiar with this company. But there are a number of interesting points that may be useful for those who want to buy Disney shares now.

Source: goodfone

At first glance Disney is now undervalued. At least judging by the exponential trend that the company’s share price has been following for ten years, now the balanced price of Disney shares is much higher than the actual:

But let’s take a deeper look.

Over the past four months, the average expectations of analysts regarding Disney’s revenue and EPS in the current and next fiscal year have notably decreased. It is particularly noteworthy that the downward trend in analysts’ expectations continues:

Further. Over the last 10 years, the company’s capitalization has been in a qualitative relationship with its revenue:

As you can see, this relationship identifies Disney’s current capitalization as undervalued. But, according to analysts’ average expectations, in Q1 ’21, Disney’s revenue TTM will be around $66 billion, and in my model, this means that the company’s rational capitalization will come close to the current level. In other words, in this context, the company’s capitalization does not have growth potential in the next three quarters.

The situation is even more dramatic if we consider the long-term relationship between the EPS TTM absolute size and the company’s capitalization:

In the long term, companies often demonstrate a direct relationship between return on equity (ROE) and the P/BV multiple. We can find an example of such a relationship in the case of Disney:

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In this case, all other things being equal, Disney’s stock price should decrease by 35% so that the balanced state can be achieved.

Let’s look at the comparable price of the company. To do this, I have analyzed over twenty multiples and found only two that deserve your attention.

Judging by the Forward P/E (next FY) multiple Disney is overvalued by 20%:

Diney comparable valuation

Comparing DIS through the Forward P/E (current FY) multiple, we obtain almost the same result:And in conclusion, I want to note that now, Disney’s Bearish Beta (a measure of how a stock price tends to drop when the market is only down) is more than the Bullish Beta (a measure of how a stock price tends to rise when the market is only on the rise):

It means that Disney stock is more responsive to the overall decline of the stock market than to its growth.

Bottom line

Again, this is my first look at Disney. I have not built FCF model yet. But for now, to be honest, I’m not very impressed with at least the immediate prospects of this company. Especially considering that the coronavirus epidemic in the USA is still at the acceleration stage, which has a very strong influence on the company’s prospects:

In a word, I would not be in a hurry to buy shares of this company. I think there will be a better moment.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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