Disney (DIS) stock has been feeling the full impact of COVID disruptions over the past several months.
With Delta cases winding down, the new Omicron variant threatens to weigh heavily on Disney's parks and cruises businesses once again.
However, if you recognize the lateral shift made by Disney since the COVID-19 pandemic started, the recent bear market in the name may seem overblown, potentially beyond proportion. Many analysts, including those at KeyBanc, see Disney stock as "significantly undervalued," with around "40% upside."
I'm inclined to agree with the bulls on Disney. While Omicron will weigh on Disney's coming quarter, the long-term game plan is still in place.
Disney May Deserve a Tech Multiple
Undoubtedly, Disney has made moves to become less of a tech-shy entertainment behemoth and more of an innovation-driven technology company.
The slashing of the dividend and ample investment in streaming technologies has allowed the firm to hold its own at ground zero of an unprecedented crisis. Undoubtedly, the COVID-19 pandemic has given a jolt to innovators, like those in the FAANG cohort who've done so incredibly well through the past two years.
The pandemic has also caused Disney to heavily embrace innovation to adapt to the new world. Going all in on innovation at a time like this is not just an attempt to dodge and weave past COVID-19 headwinds; it's a move that will fundamentally transform Disney for the better.
Disney+ Still a Major Growth Lever
User growth at Disney+ has begun to stall, and many are more inclined to rush for the exits than wait for Disney's next move.
Although Disney+ has hit a rough patch, I've noted previously that I don't believe recent weak growth numbers are the beginning of a trend.
The company is poised to spend a jarring amount on new content to give streaming rivals, most notably Netflix (NFLX), a better run for its money.
There's also a case to be made that the recent growth slowdown is a breather before the next sprint higher. Such a sprint is likely to be fueled by Bob Chapek's willingness to really open up the company's wallet on content creation.
Further, Disney's metaverse ambitions should also not be so heavily discounted by investors. A metaverse offering could really hit the spot with consumers and help the firm grow in a way to offset recent COVID-induced disruptions to its hard-hit parks business.
If anything, Disney's powerful brand and lineup of content could give it a massive advantage once the world is ready for next-generation virtual or augmented reality.
Disney Clashes With Big Tech
With a tremendous lineup of brands and content, Disney could become one of the pioneers of the metaverse alongside the likes of tech behemoths like Microsoft (MSFT) or Apple (AAPL), both of which are looking at growth to be had in the virtual worlds of tomorrow.
Under the leadership of Chapek, Disney is becoming more of a tech company, and less of a traditional entertainment company.
Undoubtedly, Disney has become more Netflix-like with its powerful streaming push. Other tech companies, many of which have made big lateral moves into the entertainment space, are becoming more Disney-like.
In a few years, Disney and the FAANG cohort, in particular, are becoming more similar, as too are the markets they're going after.
Wall Street's Take
According to TipRanks’ analyst rating consensus, DIS stock comes in as a Strong Buy. Out of 24 analyst ratings, there are 18 Buy recommendations and 6 Hold recommendations.
The Disney Stock Forecast suggests 32.7% upside potential, given its $199.23 price target.
Bottom Line on Disney Stock
Disney was likely always on its way towards becoming more of a tech firm.
The pandemic has likely accelerated the transition. If you're like me and view Disney as more of a tech firm, the stock could prove to be severely undervalued at this juncture.
Disclosure: Joey Frenette owned shares of Disney and Apple at the time of publication.
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