A potential rebound pick for 2H 2022


It was anything but a magical year for Disney (SAY) stock, now down about 40% year-to-date. Although many may question CEO Bob Chapek’s performance, the man remains at the mouse house for at least three years.

Chapek’s reign has not been great for shareholders so far; with unnecessary controversies and other issues plaguing the company, Chapek is still the man who brought the company into the streaming age.

Additionally, given the deep macro headwinds hanging over streamers and media titans, it’s hard to gauge Chapek’s relative performance. Over the next three years, we’ll find out if Chapek’s plan will work as Disney looks to weather a potential recession and economic downturn for consumers.

Lately, it’s been mostly negative news about Disney and the plight of the economy. Still, Disney is doing a lot of things that could help the stock find a bottom and start to rally in the second half. With Shanghai reopening for the summer after COVID-19 shutdowns, park activity could finally lift a coming quarter rather than weigh it down.

Stock Disney: too much bad news

It’s not just about parks and entertainment; the Disney+ platform could start making significant headway over its competitors over the summer. The streaming platform also serves as an excellent hedge against a resurgence of COVID-19 in late summer or early fall.

The BA.4 and BA.5 variants of Omicron become dominant strains. With seasonal reminders and a reluctance to shut down the economy, a return in 2020 is highly unlikely. That said, if the worst comes to the worst, anything is possible — and Disney is better prepared for such a worst-case outcome in the unlikely event that COVID-19 restrictions return.

I’m bullish on Disney stocks heading into the second half, even if Chapek can’t pull another rabbit out of a hat as we enter a period of economic instability.

What’s Bob Chapek’s next move at Disney?

Chapek will be known for pulling Disney out of the gutter in 2020 with his Disney+ streaming platform. Looking ahead, Disney looks poised to continue developing Disney+ as new releases continue to roll out of the pipeline. With such a solid slate of content, it’s arguable that Disney+ has the edge over Netflix as it bleeds subscribers.

Additionally, Disney may wish to explore new frontiers in the digital realm. The metaverse and virtual experiences of tomorrow have been a hot topic. Many large tech companies have pledged to invest heavily in this effort.

Although the Metaverse is still nascent, I think Disney can take steps to facilitate such a transition – whenever it happens. With Apple (AAPL) slated to pull back the curtain on his helmet in early 2023, the metaverse could rocket to prominence within the next three years of Chapek’s contract.

Is Disney ready for the metaverse? Chapek’s recent comments regarding the fledgling technology have been fairly vague. However, Disney’s newest cruise ship appears to be incorporating some compelling augmented reality technologies.

Disney’s cruise app is said to have a “skyglass” augmented reality feature that overlays constellations in the sky. It’s an intriguing feature, to say the least. That said, many constellation apps have been around for a while.

Either way, Disney seems more than willing to embrace technology to improve the customer experience. However, that may not be enough to make a splash in the Metaverse if it’s set to hit primetime in the next two years rather than the next two decades.

If Disney+ was the first act of Chapek’s reign, a push into the metaverse and video games could be the second. Acquiring a video game juggernaut could be the way to propel Disney into a new era of virtual experiences.

Lately, it’s hard to ignore the growing number of video games leveraging various Disney brands. From Guardians of the Galaxy, developed by Eidos-Montreal, to the many Star Wars games, it’s clear that Disney’s brands translate very well into games.

Rather than partner with developers, Disney may wish to acquire one, such as Electronic Arts (EA) outright, to take the game to the next level.

The video game industry has seen some consolidation in recent years. Electronic Arts seems a perfect fit for Disney, given that it developed many of its Star Wars games and expertise in sports titles, which would complement ESPN quite well.

The Taking of Wall Street

As far as Wall Street is concerned, DIS stock is looking like a moderate buy. Out of 24 analyst ratings, there are 17 buy recommendations and seven hold recommendations.

Disney’s average price target is $140.77, implying 46.4% upside potential. Analyst price targets range from a low of $110.00 per share to a high of $229.00 per share.

The basics of Disney Stock

Disney is no longer just a movie theater and amusement park company. It is an entertainment company that is ready to explore new media.
As Chapek looks to explore new technologies to enhance the experience as potential second half catalysts kick in for the parks, I think it will be difficult to stop a rally in Disney shares in the second half.

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