Disney Earnings: Profits Soar but Key Underlying Metrics Stay Muted; Long-Term Questions Remain

Disney’s fiscal fourth quarter displayed the firm’s financial might and why we think shares remain undervalued despite challenges it faces. Most notably, the firm has cut costs significantly, sending free cash flow skyrocketing. However, TV-related struggles continue, and the headline-grabbing 7 million streaming subscriber additions featured only minimal growth domestically. We question how successfully Disney can funnel its declining linear business straight into its direct-to-consumer streaming offerings, but with such valuable franchises and levers to pull, we feel the market is too pessimistic. We’re maintaining our $145 fair value estimate.