Key Morningstar metrics for Walt Disney

  • Fair Value Estimate: $125.00
  • Morningstar Rating: ★★★★
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium

What we thought of Walt Disney’s earnings

Experiences and streaming drove Walt Disney’s DIS 7% fiscal third-quarter sales growth and operating margin expansion of 3 percentage points versus the prior year. Free cash flow ($3 billion) remained strong amid the experiences investment cycle, and the firm is putting more cash into share repurchases.

Why it matters: Experiences (40% of third-quarter revenue and 54% of operating profit) and entertainment streaming (22% and 13%, respectively) are the keys to Disney’s future financial performance, with ongoing content creation and franchise development supporting those businesses.

  • Experiences sales rose 10% on strength in domestic patrons at US parks and the benefit of new cruise ships, offsetting a slowdown in Asia and still-depressed international visitors to US parks. We expect experiences to accelerate as the economic backdrop improves, and new cruise ships and attractions are on the way.
  • After excluding the benefit of tariff refunds, we estimate the experiences operating margin expanded by 2 percentage points, due entirely to operating leverage and revenue mix.

The bottom line: We maintain our $125 fair value estimate and wide moat rating. We believe Disney’s irreplaceable characters will continue to drive a healthy experiences business, which we estimate is worth nearly as much as the market values the whole firm.

Key stats: Streaming sales (excluding ESPN) rose 11% despite weak ad pricing, and the operating margin nearly doubled to 12.9%, though profits benefited from the timing of spending.

  • We aren’t bullish on any mature platform’s ability to maintain double-digit sales growth. However, we believe cost discipline and operating leverage on moderate sales growth can drive streaming operating profits to average double-digit growth for the next 5-10 years.
  • We believe Disney will benefit from integrating Hulu and Disney+ and adding more personalization and programming into Disney+ and ESPN, as it’s doing through deals with third parties like Fox, the CW, and TikTok.