24/7 Wall St. Insights

• Despite reasonable earnings and a finally profitable streaming business, Walt Disney Co. (NYSE: DIS) stock is down for the year.
• Do investors think management is too optimistic?
• Also: Dividend legends to hold forever.

Despite reasonable earnings and a streaming business that finally makes money, Walt Disney Co. (NYSE: DIS) shares remain down, off 2% this year compared to a 16% increase in the S&P 500. The entertainment company has not been able to convince Wall Street that it has anything close to a bright future.

At the core of Disney’s problems is an issue that has come up more often recently. Companies say consumer demand has started to soften. Economists believe that a drop in consumer spending shows that the extremely long boom period will turn into a recession before the end of the year.

Pessimism about Disney is caused by forecast softness in its theme park and cruise business, which it calls “Experiences.” Revenue from the division was up only 2% to $8.39 billion. However, operating income fell to $2.22 billion. Experiences operating income is 53% of Disney’s total. Disney management reported that “the next few quarters” would also be challenging for the division.

Investors may not believe that Disney’s view of its theme parks is still too optimistic. Competitor Universal reported that its theme park revenue dropped 10% in the most recently reported quarter. Industry experts noted that “Universal has been fighting soft attendance at its Orlando and Hollywood parks with ticket discounts.” If Disney has to do the same, the operating income at Experiences will be affected.

The ongoing trouble with Disney’s stock may have to do with something simple. Investors think management is too optimistic.

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