Image Source: Pixabay

Despite posting strong results for its fiscal third quarter on Wednesday, Disney’s (DIS - Free Report) stock has dropped 5% since its Q3 report and is now 30% below its 52-week highs. 

Recent market volatility may be playing a part in the post-earnings decline as there were some very positive signs for the iconic media and entertainment company, including its streaming unit turning its first profit.

Image Source: Zacks Investment Research

Disney’s Q3 Results

Disney stated its strong performance during Q3 was driven by its Entertainment segment, both at the box office and in direct-to-consumer (DTC). Earnings of $1.39 per share spiked 35% from EPS of $1.03 in the comparative quarter and impressively surpassed expectations of $1.20 a share.

This came on sales of $23.15 billion which rose 3% year over year and topped estimates of $22.91 billion by 1%.

Image Source: Zacks Investment Research

Steaming Profitability & Subscribers

Adding to the sharp increase on its bottom line, Disney said it was able to achieve profitability across its combined streaming businesses which include Disney Plus, Hulu, and ESPN+. Surprisingly, this came ahead of schedule as Disney’s previous guidance didn’t have its streaming services being profitable until Q4.

Notably, Disney+ Core subscribers increased by 1% during Q3 to 118 million and remains the second largest streaming service behind Netflix (NFLX - Free Report) while being ahead of Paramount (PARA - Free Report)  and Warner Brothers Discovery (WBD - Free Report)  among other competitors.

EPS Guidance

Raising its full-year EPS guidance, Disney now expects earnings to grow 30% in fiscal 2024 compared to previous targets of 25% growth. This is slightly above the current Zacks Consensus of $4.86 per share or 29% growth. 

Image Source: Zacks Investment Research

Monitoring Disney’s Valuation

Trading around $85, Disney’s stock trades at 18X forward earnings and at a noticeable discount to the S&P 500’s 22.4X and Netflix’s 33X. More intriguing, DIS trades well below its decade-long high of 134.4X forward earnings and at a 15% discount to the median of 21.3X.

Image Source: Zacks Investment Research

Takeaway

It’s certainly tempting to buy the post-earnings dip in Disney’s stock but for now, DIS lands a Zacks Rank #3 (Hold). There was a lot to like about Disney’s Q3 results and its valuation is enticing. However, it’s noteworthy that FY25 earnings estimate revisions have declined in the last week which could lead to more short-term resistance against a potential rebound although 10% EPS growth is still expected next year.

More By This Author: