Markets
DIS

Why Walt Disney Stock Popped More Than 5% This Morning

What happened

Wrapping up its fiscal 2019, Walt Disney (NYSE: DIS) reported its Q4 earnings last night, and the stock is up 4% as of 10:35 a.m. EST in response -- after shooting up more than 5% in trading earlier today.  

Disney crushed earnings estimates, reporting pro forma profits of $1.07 per share versus Wall Street's expected $0.95, and even eking out a small win on sales, with $19.1 billion in revenue trumping expectations for $19.04 billion.  

Woman at park wearing Minnie Mouse ears

Image source: Getty Images.

So what

CEO Robert Iger called the results "solid," despite the fact that actual GAAP profits were only $0.43 per share, down 72% year over year. (And pro forma results declined 28% year over year.)

Full-year earnings likewise slumped, falling 25% to $6.27 per share, but quarterly sales were up 34% and full-year sales grew 17% to $69.6 billion.

Quarter over quarter, the company's strongest sales gains came in the direct-to-consumer and international division, where revenue more than doubled, followed by entertainment (up 52%) and media networks (up 22%). Parks was the weakest performer, with sales rising only 8% -- but each and every division saw its revenue grow.

Now what

Free cash flow, however, declined year over year -- crashing an astounding 83% to just $1.7 billion (as calculated by S&P Global Market Intelligence; Disney's own calculation gives an even more depressing tally of $1.1 billion).

To me, this is the biggest concern about investing in Disney right now. If the stock's 22.6 price-to-earnings ratio isn't exactly cheap, but is at least within the realm of reality, its price-to-free-cash-flow ratio of more than 146 makes it look positively radioactive. Absent a big improvement in cash generation after Disney+ rolls out, this stock looks far too hot to handle.

10 stocks we like better than Walt Disney
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Walt Disney wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of June 1, 2019

 

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short January 2020 $130 calls on Walt Disney. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

DIS

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More