Cramer says ‘I don’t want to fight Disney anymore’ — here is what’s next for the stock
We’re fed up with Disney . “It’s a hated stock,” Jim Cramer said Thursday during the November Monthly Meeting for Club members. “Sometimes, you gotta go. And, I don’t want to fight Disney anymore.” Jim’s comments came as Disney stock sank nearly 8% following mixed quarterly results, with a streaming miss and little else to hang our hats on. Revenue in the company’s fiscal 2025 fourth quarter was largely unchanged year over year at $22.46 billion, missing expectations of $22.75 billion, according to LSEG. Adjusted earnings per share in the three months ended Sept. 27 totaled $1.11, outpacing the LSEG consensus of $1.05. On an annual basis, however, adjusted EPS fell 3%. DIS 5Y mountain Disney YTD While restricted from trading Disney on Thursday, we would not want to exit down this much anyway. The quarterly results may not have been great, but down this much seems like an overreaction. In the coming sessions, we will be looking to sell into a rebound. As a result, we’re downgrading the stock to our 3 rating and cutting our price target to $115 per share from $135. “I was glad we sold some yesterday,” Jim said, referring to Wednesday’s 150-share trim that left us with a 750-share position and a 2.2% portfolio weighting. Bottom line This wasn’t a great quarter. And, we think it’s time to move on from Disney, which we have battled for years. Disney does have a great portfolio of assets. However, the stock has become something of a value trap that hasn’t done much over the past decade. It’s taking up too much mindshare. “This thing is renting my brain, and I want to evict it. It has too much baggage,” Jim said. “I want the spot for a better stock.” Commentary In the Entertainment segment, which is Disney’s biggest, direct-to-consumer is the focus for investors. While quarterly streaming subscriber counts for both Disney+ and Hulu both outpaced expectations, DTC revenue and operating profit results came up short, as slightly better than expected average monthly revenue per user (ARPU) results in Disney+ were not enough to offset weaker than expected ARPU for Hulu’s Live TV + SVOD offering. DTC’s operating profit was up a solid 39% year over year. Disney+ added 3.8 million subscribers in the quarter, exiting with 131.6 million total subscribers, which was ahead of the 129.9 million expected, according to FactSet. Disney+ and Hulu exited the quarter with 195.7 million subscriptions — an increase of 12.4 million, and ahead of the 193.7 million expected. These net-streaming additions came despite the backlash over what turned out to be the temporary cancellation of “Jimmy Kimmel Live!” The show was taken off the air on Sept. 17 and returned six days later. Disney’s linear networks — including the likes of ABC, Freeform, FX and its namesake Disney Channel — remain under pressure, with quarterly revenue falling 16% year over year. Operating income in the linear networks division fell 21% but managed to outpace expectations. Disney’s Sports segment, which is all about ESPN, was strong. Quarterly sales and operating income beat expectations. It’s still early days for the standalone flagship ESPN streaming service that launched in late August. But on the post-earnings call, management sounded enthusiastic about the reception. The team noted that viewers are attracted to all the added features that come with the app, while advertisers are finding real value in the increased data they can glean from app interactions versus linear cable. The company said it is doing more business with existing advertising partners and attracting new partners. Disney CEO Bob Iger said that of those who have signed up to the new ESPN app, about 80% signed up for the “trio bundle,” bundling Disney+ and Hulu alongside their new ESPN streaming subscription. Live sports viewership across the ESPN networks and including ESPN on ABC was up 25% year over year. The Experiences segment at Disney, which includes parks and cruises, saw revenue come up short of expectations, though it still managed to deliver record fourth-quarter operating income. During the quarter, consumers got more pessimistic about the economy because of the government shutdown. The longest shutdown in history ended Wednesday night. The company is set to launch two new cruise ships, bringing its total fleet size to eight. The Disney Destiny makes its maiden voyage on Nov. 20. The Disney Adventure, which sets sail in March 2026, will be the company’s first cruise ship with a home port in Asia. New on the parks side, World of Frozen at Disneyland Paris will open this coming spring. Looking further ahead, management highlighted expansion efforts at all of the company’s theme parks, adding that five additional cruise ships are slated to launch after fiscal year 2026, and that a new theme park is planned for Abu Dhabi. Guidance Looking ahead, management provided detailed guidance for fiscal year 2026, while reaffirming the outlook for double-digit adjusted EPS growth in fiscal year 2027. For fiscal year 2026, the team forecasted double-digit earnings per share growth, which appears to be in line with expectations, and better-than-expected $19 billion in operating cash flow. Expected full-year capital expenditures of $9 billion also beat estimates. Nonetheless, that’s an implied free cash flow guide of $10 billion, which is a bit ahead of the $9.44 billion expected. Management also plans to double its share repurchase activity and buy back $7 billion worth of stock throughout fiscal year 2026. In addition to the stepped-up buyback, the team raised the dividend payout by 50% to $1.50 per share. Looking at the segments, management expects to deliver double-digit segment operating income growth year-over-year in Entertainment, weighted to the back half of fiscal year 2026. Low-single digit percentage segment operating income growth in Sports, “with growth weighted to Q4, reflecting the timing of rights expenses.” High single-digit segment operating income growth year-over-year in Experiences, also weighted to the back half. (Jim Cramer’s Charitable Trust is long DIS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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