Disney Shares Sink Despite Solid Revenue Growth. Is It Time to Buy the Dip?

Core Viewpoint - Disney shares have declined to attractive levels despite solid revenue growth, primarily due to CEO Bob Iger's impending departure [1] Financial Performance - Overall revenue increased by 5% to $26 billion, surpassing the consensus estimate of $25.74 billion [2][5] - Adjusted earnings per share (EPS) fell by 7% to $1.63, exceeding the consensus of $1.57 [2] - Segment operating income decreased by 9% to $3.7 billion [5] Segment Analysis - Entertainment Segment: Revenue rose by 7% to $11.6 billion, but operating income fell by 35% to $1.1 billion due to higher programming and marketing costs [3][5] - Streaming Segment: Revenue increased by 11% to $5.3 billion, with operating income soaring by 72% to $450 million [3][5] - Sports Segment: Revenue edged up by 1% to $4.9 billion, while operating income dropped by 23% to $191 million, impacted by the loss of a carriage deal with YouTube TV [4][5] - Experiences Segment: Revenue and operating income both grew by 6% to $10 billion and $3.3 billion, respectively [3][5] Future Projections - For fiscal 2026, Disney anticipates double-digit adjusted EPS growth and double-digit operating income growth in the entertainment sector [5] - Low-single-digit operating income growth is expected for the sports segment, while high-single-digit growth is projected for the experiences segment [5] - Continued double-digit EPS growth is projected for 2027 [5] Strategic Developments - Disney's streaming services are performing well, with expectations that the combination of Disney+ and Hulu will enhance engagement and reduce churn [7] - The new ESPN Unlimited app is showing strong early adoption [7] - Theme parks are performing well, with significant expansions planned, including the addition of Frozen Land at Disneyland Paris and new cruise line developments [8] Valuation - The stock is trading at a forward price-to-earnings (P/E) ratio below 16, which is considered attractive given the expected double-digit EPS growth over the next two years [9]