▶ Full Post Text
I know what you're going to say: Disney has been dead money for more than 10 years, but hear me out.
Disney has had a tough time during Covid and post-Covid - their debt-heavy Fox acquisition in 2019 right before the pandemic which disrupted their biggest money makers certainly didn't help.
Now, however, they've recovered to their pre-Covid earnings & EPS through their streaming services are finally turning profitable (revenue didn't increase much, but operating income sure did!) and their experiences, which continue to be tremendous money makers.
(That said, it must be stated that revenue only grew by like 3% and there is still some heavy drag in the entertainment sector: people still move away from cable, sports is as pricey and competitive as ever, and let's be honest their latest movies are kind of shit)
By now, they are trading at a very low P/E for their standards (about 15). The last time they were that low was pre-pandemic (according to [macrotrends who uses unadjusted PE](https://www.macrotrends.net/stocks/charts/DIS/disney/pe-ratio)).
Running a quick reverse DCF using owner earnings calculated through assumptions for maintenance capex based on their 2021 pandemic figures adjusted to inflation, **the stock's implied growth rate right now is 4.4%** (discount rate 10%, terminal rate 2%, 1.83 B shares, 29.5 net debt, 13.64 B year 0 owner earnings, 97 current stock price) -- /Edit: as some have pointed out, this likely understates maintenance capex & overstates net income (as the 12 B net income figure is in part due to a huge tax write-off). **Adjusting the income with the same taxrate of 2024 and using that as an owner earnings proxy, the implied growth rate is actually a steep 11.4%!**
The management already announced an 8B+ share buyback for 2026 & has said that there will be a double digit EPS growth for 2026 and 2027.
Plus: the actual bull case:
Disney has one of the most valuable artistic IPs in the world (Mickey Mouse, Pixar, Star Wars, Marvel) that is still being consumed by older and new generations that they can milk for nostalgia reasons forever. In an age of maturing AI capabilities, they are potentially the most prolific profiteers of this technology to churn out content based on their IP through their own D+ channels.
Right now, entertainment makes up for about 45% of their revenue (based on 2025 numbers), but only roughly 25% of their operating income (margin is at 11%).
If they manage to increase their operating margin to 20% through the use of cost-cutting AI tools (about 50% of their operating expenses in this sector are from programming and production costs), their operating income will grow by roughly 20%. If these outputs are successful and attractive enough to then pull people toward more Disney+ consumption, the growth is even bigger. These are, of course, big ifs.
The bear cases are also very real:
* we consumers are all feeling the inflation & high cost of living and we might just cut out experiences and expensive streaming subscriptions (although what I've come to observe is that people are kind of accepting not owning houses ever, but then feel entitled to other luxuries in the form of experiences as exchange)
* AI might not mature fast enough
* AI might not cut down on operating expenses (because either it can't replace enough/any people or because the tokens cost as much as it would to employ people [the latter of which I find unlikely])
* Disney might use AI before it matures and might destroy their reputation with it
* People might not consume AI-generated content (this one is a fake bear case if you actually check out the kind of AI garbage people already consume - the standards ain't that high).
* Cruises suck and they've taken great reputational damage through all the illness outbreaks that have been in the news lately but for some reason Disney wants to go hard on cruises
All that said, at 4% implied growth rate, with management buying back shares and announcing a double digit EPS growth rate for 2026/2027, I think it might still be a steal - doubly if the AI spending becomes wonky and people flee back to blue chip companies as they always do eventually.
This is, of course, NOT financial advice. This is me seeking out y'all's critical feedback to see if there's grave errors in my logic. What do you think?
/e: forgot to mention a couple of other downsides: low insider owning, history of shareholder in-fighting, debt.