Walt Disney (DIS) Sees Upgrade, Shares ‘Historically Cheap’

0:00We are back on Morning Trade Live, let's focus on Disney. The stock is trading high today after an upgrade, so more on that in a second with Marley. The new CEO Josh Demaro has some work to do when it comes to the stock price, Disney shares, finishing 9% lower in March and are down more than 20% from last June's high. That said, shares are up more than 5% this week and putting on some today's 7, 10, 7%, 97 bucks in change for Disney. That is the focus of the Morning Trade, joining us now for a closer look is Marley Cated. So Raymond James has upgraded shares today to our performance. Just walk us through exactly what the firm has stress tested here, Marley. Good morning, Sam. Yes, Raymond James upgrading, they've turned more constructive on the media and entertainment giant. They've upgraded Disney to outperform, that's from a market perform rating. As you mentioned, they also did that series of stress tests and after those results, they also assigned a $115 price target. And like you said, right now we're just over $97 and some change here. So some upside there in terms of its potential financial outlook.

1:02The firm has the Disney's current volatile macro backdrop and its international visitation headwinds do provide an opportunity to invest at what they call a very attractive valuation. They say that they think that Disney shares are, quote, historically cheap, even in some of the more draconian scenarios that it's stress tested. They also say that they believe that this headwinds are already reflected in the company's stock price and that it expects tailwinds to support earnings growth in the latter half of fiscal 26. Raymond James does point out that the company's streaming business represents the majority of its operating income growth and it sees Disney's worst reward as attractive at the current levels. Leadership also another focus here as they're amid a transition. They say they're encouraged by tomorrow's enthusiasm around technology and interactive entertainment saying, quote, we are excited to see what Josh Demarrow brings to the table as the new CEO. And Needham also put out a note echoing some of these sentiments about Disney's valuation saying that it doesn't reflect the core business strengths, Sam. They're arguing that the stock is being valued more like a travel and leisure company as

2:03opposed to a media business, which Needham says it really needs to be looked at. They say it's trading like a cruise ship company and not a media company. Right now, Disney trading at 13.7 times forward earnings that's significantly below its five year average of 27.4 times cruise operators like Carnival and Royal Caribbean right now trading at 10 and a half and 14 and a half times forward earnings. So right in line there, but as we take a look at Netflix, a traditional media company trading at 28 and a half times forward earnings. So Martin believes that Needham that there's a valuation disconnect that also presents an opportunity here as a key catalyst for those fiscal 26 second half earnings. If Disney can convince Wall Street that it is in fact a media company and not a travel company. And so if they can do that, she sees that it will double its multiple and its share price. So an interesting pivot point right now for Disney when you're thinking about what kind of company it is. And I say all of this is I'm going to Disney next week. So not thinking about the media but thinking about the parks.

3:05You are bold, Molly, spring break. You are bold. Right for me, Sam. Yeah, this kind of reminds me of the valuation debate around Tesla right now. I mean, is it a car company? Is it a tech company? I mean, it just goes to show when you have so many tentacles and revenue streams, you know, where the market is at right now. Really appreciate it. Catch you later. Thanks, Molly. Let's trade it now with Scott Bauer. See you at Prosper Trading Academy. Hey, Scotty, how are you approaching an example trade for Disney today? Hi, Sam. Yeah, you know, technically the stock is really in the middle of nowhere. I know, you know, this upgrade stocks up a little bit here. But I just don't see it moving in the near term. They don't have earnings for about a month or so. So this trade is is prior to earnings. So what I'm doing is I'm going out to April 17th. So, you know, a few weeks out here, expiration, and I'm selling an iron condor collecting premium. I'm selling the 96 93 split spread. I'm selling the 98 101 call spread. I can do that for about $1.75.

4:06So if we go out April 17th, my break even points on that trade would be 94 and a quarter on the downside, 99 75 on the upside. I love the probabilities that the stock is going to trade in between there. And if it does make a big move one way or the other, I am fully fully protected. OK, good stuff for Disney, which has come off quite a bit since obviously last summer, but making it a little bit of a comeback right now. Talk to the overall market today, Scotty. I mean, it's looking good, but, you know, we know what the president's speaking tonight. Things can change in a heartbeat. They can change before that as well. I do. I'm just a little bit cautious that maybe the market is getting a little ahead of itself here that the major rally yesterday and continuing somewhat today. I hope there's not some disappointment there. Yeah, a bit ahead of its skis. Like your background there. We've got hours straight from the slopes, really appreciated sitting up right now across

5:07the major averages. We'll see how long it lasts. Scotty, I'll see you at Prosper Trading Academy there.