Disney Earnings: Lots of Good, Especially for the Flashy Metrics, but Underlying Issues Remain

In a fiscal first-quarter report overflowing with news, Disney showed significant progress in several important business lines and offered reasons to be excited. The most unequivocally positive result, in our view, was significant margin expansion. But from a top-line perspective, some of the news, particularly surrounding live sports making its way to streaming and encouraging Disney+ trends, is merely consistent with the ongoing evolution of Disney’s business. As an offset to grand streaming plans, the results in Disney’s linear and licensing businesses were lukewarm to poor. We believe the quarter validates the strength of Disney’s assets and the firm’s ability to survive the evolution of the media industry. However, we don’t think the story has changed. We’re maintaining our $115 fair value estimate and now believe the stock is only modestly undervalued.