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Disney Stock: Wells Fargo Lowers Price Target, But It's Still a Buy

Disney’s 2021 downtrend has been exacerbated by poor quarterly results and a Wells Fargo analyst’s lowered price target. But we don’t think it’s time to sell.

This year has not been supercalifragilisticexpialidocious for Disney  (DIS) - Get Walt Disney Company Report stock. Since reaching a high of $203 per share in March, DIS has been on a downtrend. Currently, it’s trading below $150 per share.

Spooked by poor fourth-quarter results, many analysts are lowering their price targets for Disney – including Steven Cahall of Wells Fargo, who reduced his DIS target on November 22.

Figure 1: Walt Disney Studios in Burbank, California.

Figure 1: Walt Disney Studios in Burbank, California.

Why Wells Fargo lowered its Disney price target

Cahall lowered his price target for Disney stock from $203 to $196 per share. His reasoning included the slowdown in the number of new Disney+ subscriptions, as well as the ongoing effects of the Covid pandemic.

The company’s fourth-quarter 2021 earnings release included a net addition of 50% fewer Disney+ subscribers than Wells Fargo analysts had expected.

Although Disney’s CEO, Bob Chapek, had warned shareholders that the quarter’s results would be weaker than many major banks expected, they still took the market by surprise.

That resulted in a sharp stock decrease following the earnings announcement.

In addition, Covid has affected not only the company's parks, but its entertainment segment.

Cinemas have not yet recovered from the pandemic. Many theater chains have noticed a slower stream of customers as folks decide to stay home and stream movies instead.

The pandemic also affected Disney's content production, which Cahall mentioned in his analysis:

"Our work indicates that the slowing content machine was the culprit, and our cohort analysis of organic core net adds… supports [subscriptions] re-accelerating with content amortization increasing."

In plain English, Cahall believes that Disney’s earnings will improve once the cameras start rolling again.

(Read more from MavenFlixNetflix Stock: What Investors Need to Know)

How analysts view Disney

According to TipRanks, based on 23 analysts covering DIS, the average share price target is $204, which would represent a 44% upside from its current price.

The highest reported target is $225, with an upside over 55%.

It’s likely this recommendation predicts that Disney will continue to grow in the streaming industry in coming quarters and that the company’s latest results won’t drastically impact its future in this segment.

In addition, it’s very likely that this higher upside prediction also considers that, when the pandemic finally ends, people will go back to visiting Disney parks and seeing movies in theaters.

The lowest recommendation on the TipRanks platform for Disney shares is $172, which would still be an increase of 21%. Plus, of all 23 valuations for DIS, 17 analysts indicate “Buy,” six mark it as a “Hold,” and none recommend selling. This is indicative of the market’s positive expectations for this company.

(Read more from MavenFlix: Streaming Wars: Which Video Streaming Stocks To Own?)

DIS past performance

Figure 2: AMZN, DIS and NFLX year-to-date returns.

Figure 2: AMZN, DIS and NFLX year-to-date returns.

Our take

Even with Wells Fargo analyst Steven Cahall’s lowered price target for Disney, it’s still a “Buy” with an upside of nearly 30%. In addition, Disney’s share price decrease since March means its shares are on “sale,” compared to competitors Netflix  (NFLX) - Get Netflix, Inc. Report and Amazon  (AMZN) - Get Amazon.com, Inc. Report.

For the long-term investor, Disney remains a great company. And at a lower share price, investors can pick up Disney stock with a greater margin of safety.

(Read more from MavenFlix: Buy Spotify Stock At Pre-Q3 Earnings Levels?)

Is the price right?

Looking at a company’s business fundamentals is only half the work needed to find a good stock. How much one pays to own the shares is a key factor in the success of any investment. This is why valuation analysis is so important.

Alpha Spread’s user-friendly platform allows you to estimate a stock’s fair value –through valuation multiples, discounted cash flow, and more. I believe that the service is a must for anyone looking to own the right stock at the right price. Check out alphaspread.com and get started with a 7-day free trial.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting MavenFlix)