The Walt Disney Company (DIS) reported its Fiscal Q4 earnings on November 14, delivering a strong beat across the board, providing promising guidance, and impressing investors, particularly with its DTC streaming business. In response, the stock is now trading nearly 10% higher following the results. These developments provide compelling, fundamentals-driven reasons to be bullish on the stock long term, forming the basis for my Buy rating.
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However, despite trading at historically low valuations, it is still difficult to label Disney stock as undervalued when adjusting for growth. That said, this is not necessarily a factor that undermines my positive long-term outlook for DIS.
In this article, I will highlight two key bullish points from Fiscal Q4 and one factor for investors to monitor with caution.
Disney’s Direct-to-Consumer Segment Achieved Profits
To a large extent, I believe the bullish market reaction was primarily driven by the company’s entertainment business, particularly the milestone when its direct-to-consumer (DTC) streaming segment achieved profitability. This segment is now on track to surpass the declining profits from its linear networks, which still generate the highest profits within the Entertainment division. In Q4, Disney’s DTC business reported continued profitability, generating $321 million in operating income—an increase of $700 million year-over-year.
A major contributor to this result was the success of the ad-supported tiers for Disney+, which grew by 4% year-over-year. These budget-friendly options have helped push ad-supported subscriptions to 37% of the DTC total. This is great news for Disney, especially considering the recent pricing changes. The company has managed to maintain advertiser interest while continuing to grow its streaming business.
Over the past year and continuing into the current year, Disney had been losing billions of dollars in its streaming segment. Therefore, reaching profitability is a key point that investors are celebrating in the wake of these results. The company’s streaming segment is now scaling up to become one of the largest in the world. As of the end of the quarter, Disney had 174 million Disney+ Core and Hulu subscriptions, with more than 20 million paid Disney+ Core subscribers—an increase of 4.4 million from the previous quarter.
While Disney is steadily closing the gap with Netflix (NFLX), it is important to note that Netflix remains well ahead, with over 230 million subscribers, and that’s just for one service. Disney, by contrast, operates three streaming services, and even when combining all three, it still lags behind Netflix. This underscores how dominant Netflix has been in the streaming industry and how successfully it has defended its position amid the increasing competition in the space.
Disney Projects Promising Guidance
The second point of optimism for Disney stems from its projections through Fiscal Year 2027. In particular, the company’s forecasts for the next three years are quite positive, highlighting strong growth in earnings per share and cash flow from operations.
Starting with Fiscal Year 2025, Disney expects high single-digit growth in earnings per share, ranging from 7% to 9%. Additionally, the company projects a significant $15 billion in cash flow from operations for that year. On the other hand, Disney anticipates a slight decline in Q1 Disney+ Core subscribers compared to Q4, where it saw a notable increase. The recent price hike for Disney+ could contribute to this decline, as higher subscription costs may lead to a reduction in subscriber numbers, as projected for Fiscal Year 2026.
Looking ahead to Fiscal Year 2026, Disney is forecasting a stronger performance, with double-digit growth in both earnings per share and cash flow from operations. This trend of double-digit growth is expected to continue into Fiscal Year 2027, with earnings per share projected to see a similar increase.
DIS Valuation Appears Less Attractive After Adjusting for Growth
A potential counterpoint to the positive outlook for Disney post-Q4 is that the stock may be trading at a stretched valuation when adjusted for growth—especially considering the clear long-term guidance provided in the most recent quarter.
At first glance, Disney’s forward P/E ratio of 21x doesn’t seem expensive, particularly since it’s nearly 50% below its 5-year average. On the other hand, when factoring in Disney’s updated guidance, which points to a double-digit EPS growth over the next few years, the stock still appears overvalued. Analyst consensus projects EPS growth of 9.4% in Fiscal 2025, 11.8% in Fiscal 2026, and 12.2% in Fiscal 2027, resulting in an estimated EPS compound annual growth rate (CAGR) of 10.3%. Based on the projected P/E for 2025, this implies a PEG ratio of 2x—meaning Disney is trading at twice its projected annual earnings growth rate.
Of course, the PEG ratio is just one metric to consider. Disney’s diverse business portfolio, which includes Entertainment (linear networks, DTC, and content sales) and Experiences (parks) divisions, as well as its valuable intangible assets like branding, may justify a premium valuation. For investors who believe Disney is trading at its lowest multiples in the past five years, this could represent a buying opportunity. However, the argument that Disney is a “cheap” stock doesn’t seem compelling to me.
Is DIS A Buy, According to Wall Street Analysts?
On TipRanks, Disney stock holds a Strong Buy rating, with 15 analysts giving it a Buy rating and 5 offering Holds, based on the views of 20 Wall Street analysts. The average price target is $123.12, which implies an upside potential of 8.44%.
Conclusion
I rate Disney as a long-term buy, following a quarter that investors definitely loved to see: strong profitability growth, with the DTC streaming segment standing out as a key driver in putting the company on track to reach its all-time highs once again. The long-term guidance is also encouraging, providing greater clarity and signaling continued profitability growth in the years ahead.
While Disney’s valuations are low compared to historical averages, the stock still trades at a sizable premium, especially if it meets its higher-end EPS guidance. However, this premium is likely justified by Disney’s diversified business model, its growing competitiveness in the streaming wars, and the significant value of its brand across multiple segments.
