3 Reasons Why Disney Stock May Be a Smart Buy After Q2 Earnings Beat

Disney DIS delivered impressive second-quarter fiscal 2025 results that exceeded the Zacks Consensus Estimate for both earnings and revenues, demonstrating strong momentum across its business segments. (Read More: Disney Q2 Earnings Surpass Estimates, Revenues Increase Y/Y)

With shares trading below their historical premium despite the company's improved financial outlook, Disney stock appears increasingly attractive for investors looking for both growth and stability.

Impressive Financial Performance Shows Strategic Execution

Disney reported outstanding financial results for its second quarter ended March 29, 2025, with adjusted earnings per share (EPS) up 20% to $1.45 compared with $1.21 in the prior-year quarter. Total segment operating income increased 15% to $4.4 billion from $3.8 billion in the second quarter of fiscal 2024, while revenues growing 7% to $23.6 billion.

These results reflect Disney's successful execution across its four strategic priorities: producing exceptional creative content, achieving profitability in streaming, evolving ESPN into the preeminent digital sports platform, and driving long-term growth in its Experiences segment.

The Entertainment segment was particularly strong, with operating income surging 61% to $1.3 billion compared to the prior-year quarter. This impressive growth was largely driven by the Direct-to-Consumer business, which has finally turned the corner on profitability, a critical milestone that investors have been eagerly awaiting.

Direct-to-Consumer operating income increased $289 million to $336 million, with Disney+ and Hulu reaching a combined 180.7 million subscriptions. Disney+ alone now boasts 126 million subscribers, demonstrating the platform's continued appeal in an increasingly competitive streaming landscape.

The Zacks Consensus Estimate projects fiscal 2025 revenues of $94.88 billion, indicating 3.86% year-over-year growth, with earnings expected to increase 13.28% to $5.63 per share. These projections suggest steady growth ahead.

(Find the latest earnings estimates and surprises on Zacks Earnings Calendar.)

Streaming Profitability Achieved as Content Drives Growth

After years of heavy investment in its streaming platforms, Disney has successfully navigated the challenging transition from traditional media to direct-to-consumer models. The significant profitability improvements in streaming should boost investor confidence in management's long-term strategy.

Disney's creative studios continue to deliver best-in-class films and series that successfully leverage across businesses and numerous consumer touchpoints. Mufasa: The Lion King has demonstrated impressive staying power, earning more than $720 million at the global box office, while Thunderbolts from Marvel Studios opened as the number one movie worldwide.

The company has many highly anticipated titles coming to theaters later this year, including the live-action Lilo & Stitch, Elio, The Fantastic Four: First Steps, Freakier Friday, Zootopia 2 and Avatar: Fire and Ash. These releases should drive not only box office revenues but also streaming engagement and merchandise sales.

Disney's theatrical releases create valuable franchises and generate long-term value across the company. The Moana franchise exemplifies this strategy, with Moana 2 becoming one of the top three films of 2024 with more than $1 billion at the global box office while also driving Disney+ engagement.

Shares of the company have lost 0.8% in the year-to-date period against the Zacks Consumer Discretionary sector’s growth of 0.2%. Disney+ faces intensifying competition from incumbents like Netflix NFLX, Amazon AMZN-owned Amazon Prime Video and Apple AAPL-owned Apple TV+. While Netflix has returned 24.5% year to date, shares of Amazon and Apple have lost 4.9% and 15.85%, respectively.

Year-to-Date Performance

Multiple Growth Catalysts on the Horizon

Looking ahead, Disney has several compelling growth catalysts that should drive shareholder value in the coming years.

In sports, ESPN delivered its most-watched second quarter in primetime ever, with viewership among the key 18-49 demographic up 32% compared to the prior-year quarter. This growth was driven by marquee events like the USA/Canada 4 Nations Championship and Women's College Basketball, which saw its most-watched regular season in 16 years.

The company is preparing to launch ESPN's exciting new direct-to-consumer product offering, which should further strengthen its position as the preeminent digital sports platform.

Meanwhile, the Experiences segment delivered strong results, with Domestic Parks & Experiences operating income growing 13% compared to the prior-year quarter. At Disney Cruise Line, the Disney Treasure is now in its second full quarter of operations, with two more cruise ships joining the fleet later this year.

Most impressive is Disney's unprecedented pipeline of expansion projects around the world, creating thousands of new jobs in Florida and California. This includes special celebrations for Hong Kong Disneyland's 20th anniversary and Disneyland's historic 70th anniversary.

The Bottom Line: Disney Offers Compelling Value at a Discount

Based on its strong second-quarter results and improved outlook, Disney stock appears significantly undervalued relative to its growth prospects. The company currently trades at just 19.25 times trailing 12-month price-to-earnings, notably below the Zacks Media Conglomerates industry average of 21.37 times. This valuation discount presents an attractive entry point for investors seeking exposure to a premium media brand.

DIS’ 3-Year P/E TTM Ratio Depicts Discounted Valuation

Management has confidently raised guidance for fiscal 2025, now expecting adjusted EPS of approximately $5.75, representing a 16% increase over fiscal 2024. The company also projects approximately $17 billion in cash provided by operations, suggesting a $2 billion increase over prior guidance. This robust cash flow enables continued investments in growth initiatives while returning capital to shareholders through the company's share repurchase program.

Conclusion

With its streaming services now profitable, box office hits driving multi-channel revenues, significant expansion projects underway in the Parks segment, and a valuation below industry averages, Disney offers investors exposure to multiple growth vectors with increasingly solid financial fundamentals. For investors looking for a blue-chip media and entertainment company with both defensive characteristics and growth potential, DIS stock appears to be a compelling buy at current levels. Disney currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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