Which power giant plays better?
Jim Cramer, host of Mad Money on CNBC and head of the CNBC Investing Club, is saddened by the fact that the mass media and entertainment giant The Walt Disney Company (NYSE: DIS) deals almost one-on-one with streaming giant Netflix (NASDAQ: NFLX).
“It’s starting to get ridiculous that Disney is switching almost one on one with Netflix. I’ve never seen a Netflix theme park, but it can not be as good as a real octopus game, tweeted Cramer. Which brings us to the exciting question: which power giant is shaping up better in the post-pandemic?
Let’s take a look at both the entertainment companies’ current performance and valuations.
Disney Dashes trailers
After reaping the benefits of the pandemic-related closures, Disney theme parks are flooded with visitors with the start of the summer season. On the other hand, Disney’s streaming platform, Disney +, is also ripe with a number of new launches, which attract a huge number of viewers.
Yes, inflationary pressures and fears of recession double on Disney’s park visits. However, international tourists and parks around the world can make up for the lost cause. However, rising interest rates and labor costs can bite into the margins of the House of Mouse company, as fixed costs are still a difficult task to deal with in times of economic downturn.
The DIS share has lost 37.8% so far this year. The company is expected to report earnings for the third quarter of 2022 on August 9, with consensus earnings per share (EPS) related to $ 1.00.
Yesterday, Citigroup analyst Jason Bazinet drastically cut the price target on the DIS stock to $ 145 (48.8% upside potential) while maintaining a Buy rating.
The bank has lowered its FY23 estimates due to expectations of higher expenditure growth, but an unchanged income estimate, which results in falling margins. The analyst believes that the fear of recession is more serious for companies with higher advertising exposure and lower contract revenues, such as Disney.
However, analyst Barton Crockett of Rosenblatt Securities is very optimistic about the stock and recently repeated a Buy rating with a price target of $ 174, which means 78.6% upside potential to current levels.
Looking at the valuations, Disney is currently trading at a price / sales (P / S) ratio of 2.28 times, which is above the sector median, but far below the five-year average of 3.49 times. In particular, the ratio between price and earnings per share (P / E) of 28.92 exceeds both the sector median and the five-year average, which makes the share look expensive at the current level.
The Street is very optimistic about DIS shares with a strong buy consensus rating based on 18 buys and six holdings. The average price forecast for Walt Disney Company of $ 140.09 suggests 43.8% upside potential to current levels.
Loss of Netflix Nets Subscribers
Netflix is having a hard time keeping up with the subscriber base, which is slowly but surely declining quarter over quarter. NFLX shares have lost 68.3% so far this year. The “Stranger Things” streamer is slated to release revenue for the second quarter of Fiscal 2022 on July 19th. The consensus for EPS is $ 2.99.
Ahead of the NFLX’s Q2 printout, Stifel Nicolaus analyst Scott Devitt kept the model estimates unchanged as he repeated a Hold’s rating on the stock with a price target of $ 240. Devitt noted that, according to Apptopia’s engagement data, engagement during Q2 showed modest growth relative to Q1 readings.
Furthermore, the analyst believes that Netflix’s entry into the ad-supported tier business is in its infancy and will take a while to materialize into a full-fledged cash-generating segment. However, “reasonableness restrictions in international markets” could be a spoiler for the company’s growth plans along with “increased competition and potential maturity in core markets,” he noted.
Similarly, Needham analyst Laura Martin, who also has a Hold rating on the NFLX stock, pointed out a few steps the company must take to improve its competitive advantage in the streaming industry.
According to Martin, Netflix must “a) launch the promised ad-driven streaming level to expand TAM; b) add sports and news content to improve the performance of” Job to be Done “(ie entertain consumers); c) offer bundling with other products (to reduce churn); and / or d) acquire a large movie and TV content library (to reduce churn). “
In terms of valuation, Netflix is currently trading at a P / S ratio of 2.71x, which is above the sector median, but more than halfway down the five-year average of 8.62x. On the contrary, its P / E ratio of 16.87x is trading well below the sector’s median and five-year average, suggesting that the stock is very cheap at current levels.
Street analysts are extremely cautious about NFLX stocks right now, with a Hold consensus rating based on ten purchases, 25 holdings and six sales. The average Netflix price forecast of $ 266.77 represents almost 41% upside potential to today’s level.
Both Netflix and Disney are currently in shaky waters with the macroeconomic headwinds at stake. However, with its diverse offering of theme parks, movies and streaming services, Disney seems to be in a relatively better position than Netflix at the moment. Also, analysts are very positive about Disney than about Netflix.