Will Disney's Shares outperform the Market by 2025?
It's been a fruitful year for Disney (DIS) investors. The media giant's shares are trading 24% higher in 2024, heading towards the last complete trading week of the year. This coincides with the 24% surge for the S&P 500. If Disney can outperform the market in the remaining days, it will be the first time since 2020 that Disney's stock outshines the S&P 500.
Investors wouldn't be satisfied with just keeping pace with the market, especially considering Disney underperformed the S&P 500 in the previous three years. The question is, can Disney surpass the market in 2025, making it the first time in five years? Let's delve deeper.
Bouncing back
Instead of ending 2024 with a strong finish, Disney seems to be having some issues. Last week, Disney's ABC agreed to pay $15 million to settle a defamation lawsuit with President-elect Donald Trump. Over the weekend, Disney disappointed at the local cinema after a remarkable recovery in 2024.
Mufasa: The Lion King managed only $35 million in domestic ticket sales over the weekend, while industry predictions were anticipating $50 million domestically and $180 million globally. To add salt to the wound, the big-budget entry in the acclaimed Lion King series went short in the U.S., losing the domestic race to Sonic the Hedgedog 3 and its $62 million earnings from U.S. audiences.
Disney's Moana 2, after three weeks at the top domestically, slid to fourth place. It was overtaken by Wicked, defying the laws of gravity, as it debuted a week earlier than the sequel to 2016's Moana. Wicked does not have the same international appeal as Moana 2, as the latter has surpassed double the box office receipts outside of the U.S. market.
Moana 2 is expected to be a significant contributor to Disney's bottom line, having already garnered over $790 million globally, aiming to become the third Disney theatrical release of 2024 to surpass $1 billion, following the summertime success of Inside Out 2 and Deadpool & Wolverine. None of Disney's studio releases in 2023 crossed the $1 billion mark. Mufasa is now unlikely to join this year's three big winners. It will be challenging to avoid a loss in the new fiscal year, considering the estimated $200 million production cost.
The ABC settlement and weak Mufasa premiere are just minor setbacks for a company that has more winners than losers in 2024. Disney is poised to continue its triumphant roar as fiscal 2025 unfolds.
Get ready
This will be Disney's first year of double-digit gains since 2020. Shares experienced two consecutive years of double-digit percentage declines before managing a 4% increase in 2023. Building on the momentum of 2024 is crucial.
There will be hurdles in 2025. Disney's domestic theme parks have shown signs of stagnation in recent quarters. Disney now faces a "monumental" challenge as rival Comcast opens Epic Universe in Walt Disney World's vicinity in May. Disney's linear networks segment is expected to fade in popularity as more viewers turn to streaming services. An uncertain economy or global instability could put pressure on most of Disney's operations.
The positives still outweigh the negatives. After two consecutive quarters of positive operating profits, Disney+ and the rest of the media stock's streaming platforms have the potential and content to significantly boost profits. Disneyland will celebrate the 70th anniversary of its original gated attraction with a celebration in May that will last for over a year.
Disney's studio will have several potential blockbusters. The 2025 release slate includes new releases in the Captain America and The Fantastic Four franchises. In the animated department, Zootopia 2 and Pixar's Elio should perform well. There's also an eagerly-awaited live-action adaptation of Lilo & Stitch. The final Disney cinematic release of the 2025 calendar year will be Avatar: Fire and Ash. The previous film in that franchise - 2022's Avatar: The Way of Water - is the world's highest-grossing film since the pandemic.
Analysts have been gradually bumping up their earnings per share targets in recent weeks. They now expect the House of Mouse to report a 12% increase in earnings per share on a 5% rise in revenue for all of fiscal 2025. Disney's dividend has been reinstated and has already been increased twice. The board has announced plans to announce CEO Bob Iger's successor by early 2026. The pieces are in place for Disney to take the reins of market leadership in 2025.
Despite the ABC settlement and underperformance of recent film releases, analysts remain optimistic about Disney's financial future. They anticipate a 12% increase in earnings per share and a 5% rise in revenue for all of fiscal 2025, making it a promising year for investing in Disney's shares. To maximize profits, Disney investors should consider diversifying their portfolios, potentially allocating funds towards Disney's upcoming releases, such as new entries in the Captain America and Fantastic Four franchises, as well as highly anticipated animated films like Zootopia 2 and Pixar's Elio.
