$DIS · Value Investing with Sven Carlin, Ph.D. · 2026-11-05

Today, we have to eat Disney. This led us to discuss Disney. Therefore, one of two things can happen. Either these businesses will stay put, or Disney's streaming service will grow and reach a higher rating compared to Netflix, perhaps because of better content, and better integration of everything Disney has that Netflix doesn't, all of which is integrated together, which represents Disney's core brand and competitive advantage.

Now, let's move on to Disney. Looking at the stock price, you'll find that over the past twelve years or so, the stock has achieved nothing. The price-to-earnings ratio is 23, the dividend yield is 1%, and there are share buybacks, but there is a lot of stagnation.

There was growth in the past, and now we are back in a recession and we have to ask ourselves whether we will see growth again.

It's not a straightforward, simple business when you're faced with situations like this. Perhaps one of the reasons for the recession was the $71 billion acquisition of Twenty-First Century Fox in 2017, and some other acquisitions that did not lead to significant returns on investment.

We are where we are now. We have the business now, and the core idea is to invest in content, continue to develop the parks, and invest heavily in them because they are the profitable engine of the company, but also to invest in streaming, reach more customers globally, and grow the company based on the "One Disney" operating model, which is also important for a later evaluation of the total number of parks.

"Toy Story" constantly presents interesting things. We are currently watching the epic "Star Wars" as my child is ten years old, and it is very fun to do something very nice.

We see that revenues are growing in the experiences sector, and new cruise ship launches are on the rise, as they can charge higher prices on those ships compared to competitors, which again demonstrates the strength of the brand.

When it comes to brands, what is the value of a brand? It is the cash flows it generates. This is a very simple and effective definition. Disney can charge higher prices, therefore the value is there.

The change in guests globally remains positive, but we also need to understand this from a risk perspective; They are investing a lot, $6 billion a year for the next decade in theme parks, adventures, streaming, and the integration of Hulu, ESPN and everything else.

We must say that Disney is a competitor as a unified brand. It has a strong brand. It often offers more for less compared to Netflix at similar prices.

But the positive thing here, also in streaming, is that while they are building it, they can raise prices and the cancellation rate is likely to be low.

Then we have the Disney sectors in addition to just streaming, or that streaming is the marketing engine for entertainment, but that's okay. The key point is that families are willing to pay a premium of between 40 and 60% compared to Royal Caribbean or others.

The downsides: traditional television, things are declining, and sports are suffering from inflated sports costs. So, it's a mix, and not always positive. Let's look at that from a financial perspective.

Everything seems acceptable. Not spectacularly great, but acceptable.

Revenue grew by 6%, entertainment and sports by 4%, and experiences by 10% during the quarter. Total revenue, with high single-digit growth, doesn't look bad.

There were some positives in the operating income that were being adjusted, but it's okay. Looking at the long-term overall picture, there is growth, and nothing is wrong with revenues, margins, gross profit margins, ups and downs, but they are improving slightly as they get closer to profitability in streaming.

Operations resumed, of course, the parks were closed, and they returned to normal and even better. This looks good. Net income, there was a decrease in value, so it is rising again.

They are investing heavily in capital expenditures, from 4 and 5 billion, now 8 billion, and they are on the rise, but they are also repurchasing common stock and paying growing dividends after the pause.

When I look at this, I estimate the company's free cash flow at $9 billion as it is. Now, moreover, we need to appreciate the growth. My estimates are consistent with the nine months that have passed, and the year is likely to end with $9 billion in free cash flow.

This spending, on parks, resorts, and other properties, will most likely remain the same, as will spending on content. The thing is, the return on invested capital has been historically low, look at this.

Attractions, buildings, and equipment: 87 billion; consumption: 50 billion. This means they spent 137 billion on those things. Those things do not generate returns of 13 billion, which means that the return on capital is less than 10%.

Then there's Goodwill, with $74 billion from previous acquisitions. When you add these things up, you'll find that 200 billion has been spent, and they're not making 20 billion a year.

Therefore, it is a company with a low return on invested capital from a historical perspective.

Will this improve in the future? That is the question. But if you look at the large loans, 47 billion, with high interest rates, that's something to think about too. Another risk: $60 billion in capital expenditure on experiments in the next decade.

Historically, the return has been good, but not spectacular.

If you need to constantly update and add new things at low prices, the question is: what is their real value? They sell shares in old, traditional businesses that are declining, and repurchase other shares.

Therefore, they hope to repurchase shares worth 9 billion. They are trying to manage that capital as best as possible, along with cutting costs, just as Netflix did by reducing staff.

But the guidelines are there: healthy growth in experiences and entertainment, double-digit growth. Everything looks good. Prior year's guidance, cash generated from operations of 19 billion, and 9 billion capital expenditures for fiscal year 2026.

Other benefits, this and that, approximately 9 billion free cash flow.

Now, many people say: "Sven, the sum of the parts is such and such." Yes, even if you calculate the sum of the parts, and give them a higher rating here or there, no one has 250 billion to acquire Disney.

Not with a low return on invested capital. Buffett wouldn't do that at these levels.

Buffett wanted it or bought it 50 or 60 years ago when its price was less than the value of the equipment alone, after it had been worn out. Therefore, Disney's value lies in the whole and in the criticism it can produce as a whole, not as a sum of parts, regardless of what some may tell you.

Risks: Lower return on capital expenditures, negative consumer sentiment that could be a game-changer, or something else becoming more exciting like TikTok instead of going to Disney.

Going to Disney for a more exciting, realistic experience may become a long-term trend; these are the risks and rewards.

We have a boom in digital broadcasting, which is a positive thing again. Analysts are predicting slightly higher growth this year, with more positives of 8% to 11%, but what analysts never expect is shocks, recessions, or anything at all.

This is a big question mark for me, because this is what usually affects a company like Disney sooner or later.

Let's take a look at Disney. I just added it for this video. The free cash flow calculation per share is 5.21. If the company grows by 8% or 6% over the next ten years with a profitability ratio of 15, then its intrinsic value is half the current share price. This is my conservative estimate.

If we are more optimistic, i.e., with an ideal price and a profit margin of 20, we will be close to the current level. This is what the market is currently pricing it at. No recession, no problems.

This is my most conservative estimate of the basic situation. Therefore, the price should decrease by 50%. The safety margin must be reduced significantly. Is that possible? I don't know, but Disney is much more expensive.

An estimated return of 6% or an intrinsic value of 60% to 10%. If you compare it to Netflix, which we discussed yesterday, it is more positive with an expected return of over 10%.

Herein lies the danger of recession, a 50% drop, hotel occupancy rates, everything is declining. This is a risk that has occurred twice, in addition to other shock risks and things like that. This is something worth thinking about.

If you compare Disney in my risk-reward box, Netflix looks like a much better risk-reward business. I classify Disney as an established company that is in line with market prices.

This is the 6-7% return that we also discussed by looking at the companies in the "S&P 500" index, for which we dedicate one video per week.