A Royally Good Time To Buy The Walt Disney Company Disney is moving lower on tepid results, but this may be a royally good time to buy given margin improvement in the streaming business.

Shares of The Walt Disney Company (NYSE: DIS) shed more than 5% following the Q2 earnings release, but this may not be the time to sell. The stock is trading at historically low levels, suggesting the valuation is at rock bottom, just as signs of margin improvement appear in the streaming business.

The Q2 results are tepid, which can't be sugar-coated, but other takeaways from the report are investments in streaming and margin improvement that has the segment on track for profitability.

The takeaway is that Disney shares may not rocket higher soon, but they aren't likely to fall much further, and there are other catalysts in the works as well. The company is still on track to resume the dividend later this year, which will be a significant catalyst for the market.

The last payment of $0.88 semi-annually amounts to 1.75%, with shares trading near $100. The company would pay less than 45% of its fiscal 2023 EPS targets at that level.

Disney Has Tepid Quarter, Sheds Subscribers

Disney had a tepid quarter but did not give the results that typically result in a 5% decline in share prices. The company's revenue grew by 13.4% to $21.82 billion, which was in line with the Marketbeat.com consensus figure but not below it. The strength was driven by the travel rebound and a 17% increase in Parks revenue offset by slower 3% growth in streaming.

Streaming is the center of the market's attention due to a decline in Disney+ subscribers, but that was not unexpected. The streaming market has limited subscribers; now that they're all linked up, the industry is turning to profitability, which shows in Disney's results.

Disney's margin fell slightly below consensus, resulting in $0.93 in adjusted earnings. This is down compared to last year and a penny shy of estimates but still a solid showing, given the streaming market. The Entertainment segment continues to show net losses due to investment in content and capability.

Still, margin gains driven by pricing actions are outpacing subscriber loss, and additional improvements are expected by the end of the year. Among them are consolidated services, which means Hulu and Disney+ will be integrated into 1 service.

The analysts were not invigorated by the news but continued supporting the stock. Analysts from Bank of America, UBS and Wells Fargo, which rate the stock a Buy/Strong Buy, did not alter their ratings or targets but indicated a positive change was underway, stressing that it may take time to bear fruit.

The trend in sentiment ahead of the report was positive. The sentiment was firm at Moderate Buy, with a price target firming after a year of a downtrend. Assuming this continues, the stock price should continue to bottom and begin to build a stronger base.

Disney's Valuation May Cap Gains In 2023

Disney is not a cheap stock trading at 25X its earnings outlook and disappointing the market with subscriber losses—the lack of dividends compounds that and may cap gains this year. The upshot is that the P/E multiple falls to a much lower 18X EPS compared to the 2024 estimate, and the dividend is expected to come back between then and now.

The stock is moving lower today but can only go so far. A significant support zone is below the post-release action marked by the 2016 and 2020 COVID pandemic lows. This line has produced strong bounces in the past and sustained rallies. The market may wallow here for the next few months or quarters, but a rebound is expected. Improvement in the streaming business, a sustained rebound in the park business, analysts' sentiment and the dividend may all provide catalysts to buy.