Disney Says Its Stock Is Undervalued. Here's Why Value Investors Should Buy DIS Stock Here.

Disney (DIS) released its fiscal Q3 2026 earnings before the markets opened yesterday, August 5. Barring the slight top-line miss, it was an overall solid performance from the entertainment giant whose shares have otherwise underperformed terribly and have practically gone nowhere over the last decade. Despite the post-earnings rally yesterday, DIS is down 9.25% for the year, and unless something changes significantly over the next five months, it looks doomed for another year of underperformance versus the S&P 500 Index ($SPX) – a dubious feat it held in four of the last five years.

Disney’s earnings have meanwhile been growing all these years. The company’s streaming business has particularly seen a turnaround and posted an operating profit of $712 million in fiscal Q3. At its peak, Disney’s streaming business lost $1.5 billion in a quarter, even though the two numbers might not be strictly comparable given the reporting changes over the period.

Disney Finds Its Stock Undervalued

Meanwhile, the divergence between Disney’s earnings and stock price has pushed down its valuations, and its forward price-to-earnings (P/E) multiple currently sits at 14.37 times. In its fiscal Q3 shareholder letter, Disney said that it finds its shares “undervalued” and put its money where its mouth is. The company increased its share buyback program for the current fiscal year and now expects to repurchase at least $9 billion of its shares. The original plan for the year was $7 billion, which the company subsequently raised to $8 billion. Now, it plans to use the $1.2 billion cash proceeds from its stake sale in A+E Global Media to repurchase its shares and has thereby increased its target.

Sell-side analysts also see significant upside in Disney, and its mean target price of $128.87 is 25.5% higher than current price levels, while the Street-high target price of $163 (via Goldman Sachs) is 58.7% higher. The stock has a consensus rating of “Strong Buy” from the 32 analysts polled by Barchart.

What Makes Disney an Attractive Investment

Disney boasts some of the most iconic intellectual property (IP) in the entertainment space and is the literal “cradle to grave” business offering something for practically every age group. During the fiscal Q3 earnings call, Disney discussed its flywheel, which is something that makes the company an attractive investment. The business has many moving parts that complement each other. Giving the example of The Mandalorian and Grogu, whose box office performance was disappointing, Disney pointed out that the movie still “drove healthy growth in retail sales for the Star Wars franchise and drew guests to the updated Millennium Falcon attraction at Disneyland and Walt Disney World and led to significant engagement in gaming as well.” 

Toy Story is another example that Disney CEO Josh D’Amaro cited during the earnings call and pointed out that, apart from $4 billion in box office collections between the five movies, including $1 billion from the latest one, the franchise has amassed more than two billion hours streamed on the company’s streaming platform. Moreover, that IP generates annual retail sales of over a billion dollars across different channels, including parks and hotels.

Incidentally, better monetization is one of the three strategic pillars that D’Amaro laid out for the company shortly after taking over the baton from Bob Iger. The ultimate goal is to ensure that success in one area - such as a hit film - compounds into value elsewhere, whether that’s a new cruise ship theme, a video game expansion, or a themed land in a park. 

Disney Trades at Attractive Valuations 

I couldn’t agree more with Disney on the stock being undervalued. However, Disney has been getting incrementally cheaper over the last year thanks to the underperformance. Even streaming rival Netflix (NFLX) trades at depressed valuations, as its forward P/E has compressed to just 20.41 times after the sharp fall over the last year.

Nevertheless, I believe Disney is a “Buy,” particularly for value investors, given its tepid valuations and the growth profile it offers. The company expects its adjusted earnings per share (EPS) to rise 12% in the current fiscal year and sees the metric rising “double-digit” in the next fiscal year. Disney is a business with a significant moat and a strong business model with different moving parts complementing each other.