Walt Disney DIS released its first-quarter earnings report on Feb. 2. Here’s Morningstar’s take on Disney’s earnings and stock.

Key Morningstar metrics for Walt Disney Stock

  • Fair Value Estimate: $120.00
  • Morningstar Rating: ★★★★
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium

What we thought of Walt Disney’s Q1 earnings

Walt Disney’s DIS 5% year-over-year revenue growth and a 9% decline in operating income were driven by strong results in the areas most critical to the firm’s future: experiences, streaming, and sports. Entertainment profit outside streaming declined 55%, and negative free cash flow was mostly due to timing.

Why it matters: Linear networks and theatrical films account for most other entertainment and have little bearing on our view. Most importantly, experiences growth remains healthy, sports remains stable, and streaming margins continue to expand alongside growing sales.

  • Experiences sales grew 6% year over year, while operating margin held at 33% despite incurring costs for attractions that should accelerate sales growth next quarter and beyond. The segment accounted for 72% of operating profit.
  • Streaming sales grew 11% year over year, as operating margin expanded to 8% from 5% a year ago. Sports sales grew 1%, while the operating margin contracted 1 percentage point to 4% in the seasonally less-profitable fiscal first quarter.
  • We believe hiring Josh D’Amaro as CEO to replace Bob Iger is the right choice, due to his familiarity and success with Disney’s experiences unit. That business makes up about 60% of the firm’s operating profit, is the biggest source of future growth, and is the key reason we believe Disney is undervalued.

The bottom line: We maintain our forecast and $120 per share fair value estimate. We believe Disney has a wide moat and an outlook for solid long-term growth, but near-term results have downside risk.

  • Management cited international tourism headwinds at domestic parks in guiding to only modest fiscal second-quarter experiences in operating profit. We’ve built this and other economic risk into our experiences forecast since last year, but we’d expect a continued stock selloff on further weakness.
  • We expect accelerating experiences sales and operating profit growth in the longer term. Disney will launch another cruise ship in March, and it is expanding at all its parks.

Between the lines: For the first time, Disney did not disclose the number of streaming subscribers it has or sales and operating profit from linear networks and content licensing, making it difficult to dissect what fueled the decline in entertainment operating profit outside of streaming.

Fair Value estimate for Walt Disney

With its 4-star rating, we believe Disney stock is moderately undervalued compared with our long-term fair value estimate of $120 per share. We project entertainment linear networks revenue to decline at a high-single-digit compounded annual rate throughout our 10-year forecast, as pay TV subscriptions and linear television ratings continue to decline, weighing on both subscription and advertising revenue.

We are slightly more optimistic about sports linear networks, and we also believe the ESPN streaming service can offset the headwind that comes from the ongoing decline in pay-TV subscribers that will shrink linear ESPN revenue. We project sports revenue, which includes the family of ESPN networks and streaming services, to grow about 2% annually throughout our forecast.

Economic Moat rating

We assign Disney a wide moat based on its intangible assets. Ultimately, we believe the firm’s ownership of timeless characters and franchises that attract customers to its unique parks and cruises and enable it to create popular content outweigh near-term challenges it faces related to an evolving media industry. Although we think it’s likely that a media industry not built upon the traditional pay-TV bundle will keep Disney’s entertainment and sports segments from returning to the level of economic profitability they achieved in the past, we still expect the firm’s returns on invested capital to comfortably exceed its cost of capital over the next 20 years.

Financial strength

Disney is in good financial health and produces ample free cash flow. Its net debt/EBITDA ratio at the end of fiscal 2025 was 1.9, the lowest it has been since 2018, before it acquired 21st Century Fox, launched and operated streaming services, or undertook heightened experiences investments. The firm generated over $10 billion in fiscal 2025, and despite experiences investments that should remain higher than normal for the next few years, we anticipate a similar level of free cash flow in 2026 and 2027 before further acceleration.

Disney stopped paying a dividend in 2020 when the pandemic hit and the firm needed to preserve cash. With debt down and the cash flow outlook much improved, Disney re-instituted a $1 per share annual dividend in 2024 and increased the amount to $1.50 for fiscal 2026. We believe the dividend will continue to grow, and we think share repurchases will remain a central part of capital return to shareholders. Disney has the cash flow and financial flexibility to be an acquirer, but we don’t see sizable deals that would be of interest. The firm has already been investing in its existing business at a heightened rate, so we don’t expect any further incremental investment to be material relative to annual cash flow.

Risk and uncertainty

Our Uncertainty Rating for Disney is Medium. The firm has navigated the secular decline in the traditional television industry so that it is no longer so dependent on that dying medium. The diversity of its business and reliance on parks and experiences warrant a lower Uncertainty Rating than traditional media peers.

The biggest risk is a complete disintegration of the traditional pay-TV bundle, which we expect eventually, but not for several years. We’d expect ESPN to survive via streaming but in a much smaller state if pay-TV carriage fees suddenly disappeared. We’d expect Disney’s cable networks to become almost worthless in such a scenario, while its ABC broadcast network would generate only a small fraction of the sales it does today.

DIS bulls say

  • No peer can match the depth of Disney’s iconic characters, franchises, or content library, which will keep the firm’s streaming services in high demand and give the firm a leg up in creating new movies and television shows.
  • Disney’s streaming services are moving from profit losers to major generators, while linear TV’s impact is moving rapidly in the other direction. This mix shift, with expanding streaming margins, will produce a major acceleration in firmwide growth.
  • The allure of Disney’s experiences business is unmatched and will be a continuing profit engine.

DIS bears say

  • Linear television will continue to decline. Even if successful, newer revenue sources like streaming will never equal the profitability Disney once enjoyed.
  • Disney now competes with tech companies for major sports rights, who may have incentive to continue driving up prices. Sports remains material to Disney’s future, and being forced to pay up for the critical content will depress profits.
  • Too many streaming platforms now exist, and it’s questionable whether consumers will be willing to pay high prices or stick with individual services month in and month out.

Get Morningstar insights in your inbox