Walt Disney Co. (DIS) is a buy — even as the media and entertainment giant's shares trade in the red following its fiscal second-quarter earnings the prior evening. It's worth noting that the stock on Thursday has pared a bulk of its losses as the session unfolded.
The Club is restricted from buying Disney, per our rules, which are explained at the bottom of this story. But, as always, that won't stop us from sharing our recommendations and letting members know what we'd otherwise do.
"I think you should be buyers of Disney right here," Jim Cramer said during Thursday's "Morning Meeting."
Disney's quarter wasn't perfect, as we said Wednesday night, but it absolutely was good, especially considering all the macro challenges. The market seemed to agree with us initially because the stock went higher in after-hours trading, before turning negative. Shortly after the open, the stock hit a new 52-week low under $100. As mentioned earlier, shares have since clawed back some of those losses.
We think comments from Disney CFO Christine McCarthy during the earnings call were a main driver in sentiment turning south. Her remarks about streaming subscriber growth in the second half of the year, in particular, seems to have spooked investors. Cramer blasted Wall Street sellers for misinterpreting McCarthy's remarks.
The market also may not be thrilled with the influence China's no-Covid policy on Disney's theme parks in Hong Kong and Shanghai. "They do need Shanghai to get better. No kidding," Cramer said earlier Thursday morning on CNBC, alluding to the tough business environment for all U.S. multinational companies trying to operate in China right now.
What's going right
There's a lot going well for Disney, including robust demand at its U.S. theme parks that helped that segment's operating income exceed Wall Street's expectations. There's also the success of "Doctor Strange in the Multiverse of Madness" on the Marvel film's opening weekend.
"They made $400 million plus [globally] on a movie. They are doing so well," Cramer said. "People decided Disney wasn't any good, and they seized on McCarthy who, frankly, is like maybe one of the great CFOs and she says it's ridiculous — ridiculous — that people think she guided [subscribers] down."
McCarthy confirmed that Disney still expects Disney+ subscriber additions to be stronger in the second half of the year than the first of the year. But because first-half growth exceed expectations, the CFO explained, that second-half growth may not look as strong, relatively speaking, compared to Q1 and Q2 combined.
We think some investors are misinterpreting what that means for the health of Disney+. The Club, on the other hand, is focusing on the fact Disney+ added 7.9 million subscribers in Q2, while one of its main streaming competitors, Netflix, reported a loss in subscribers in its most recent quarter. This says to us that Disney's streaming strategy is differentiated and working.
Of course, Disney's stock has not really been working this year — down about 34% year to date. Those losses are worse than the S&P 500 and Dow Jones Industrial Average, but still, it's a tough market overall. Wednesday's results further demonstrate that this is a case of a broken stock, not a broken company.
That's why we think it remains a buy on weakness.
(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.