Disney Now a Bargain? After a 25% Drop, Here’s a Smart Way to Enter

Walt Disney World Resort

Markets continued to deteriorate last week, with no resolution for ending the hostilities in the Middle East and reopening the Strait of Hormuz. Brent crude moved to over $110/barrel as a result.

Some key members of the Magnificent Seven broke down as well. Meta Platforms (META) fell over 10% on the week as it lost a couple of key litigation battles. Alphabet GOOGL dropped nearly 9% and Microsoft (MSFT) posted a decline of about 7%. It is the worst start to a year for Mr. Softie since 2008.

Overall, the Nasdaq fell just over 3% last week, the tech-heavy index’s biggest weekly loss since "reciprocal tariffs" were announced in early April of last year. After three years of outsized gains, the stock market is off to an inauspicious start to 2026.

Speaking of inauspicious starts, the new CEO at The Walt Disney Company (DIS) has faced some rough sledding in his first few days on the job. A three-year partnership with OpenAI announced late last year to bring Disney characters to life is dissolving as OpenAI is shutting down its Sora video generator, just a few months after its launch. Disney had invested $1 billion via this arrangement.

In addition, a $1.5 billion investment in Epic Games is looking iffy as that company is laying off 1,000 employees after its latest version of Fortnite hasn’t lived up to expectations.

To top it off, ABC reality star Taylor Frankie Paul’s season of The Bachelorette was cancelled by Disney due to allegations of domestic violence. I have to hand it to Bob Iger, he timed his exit out of Disney's C-suite quite well.

Disney stock has declined by a quarter since its highs last summer. That has dropped the shares into what appears to be bargain territory on a longer-term basis. I have been starting to accumulate the shares in recent weeks as has TheStreet Pro’s Doug Kass.

Disney has three primary business segments: Entertainment; Sports; and Experiences. Entertainment consists of the ABC TV network, the Disney channel, Freeform, FX, a 73% ownership interest in National Geographic, a 50% ownership interest in A&E networks as well as a variety of other assets. Sports is headlined by Disney’s 80% ownership of ESPN. Experiences is comprised of Walt Disney World and Disneyland theme parks and resorts, a cruise line and some other business interests.

The company slightly bested top and bottom-line expectations with its fourth-quarter numbers in early February but offered up more conservative guidance than Wall Street desired. That combined with worries about a slowing economy, Iger’s departure and several other factors have pushed Disney’s P/E multiple down in recent months. The stock’s market capitalization is around $165 billion.

Disney is targeting operating cash flow of $19 billion in FY 2026. The company also intends to buy back $7 billion of stock this year, roughly double its purchases in FY 2025.

Analysts are looking for earnings growth of just over 10% on revenue growth in the mid-single digits annually over the next few years. The stock trades at a considerable discount to the overall market at 14 times forward earnings and sports a current dividend yield of 1.6%. Disney has a semi-annual dividend payout.

Option Strategy

Here is how one can initiate a position in DIS utilizing a covered call strategy. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.

Selecting the October $85 call strikes, fashion a covered call order with a net debit in the $78.40 to $78.80 a share range (net stock price - option premium).

This strategy provides downside protection of nearly 16% at midpoint over the trade’s duration, which includes one dividend payout of $75 a share. The strategy also provides upside return potential of just over 9%, including the semiannual dividend payout, even if the stock trades down 8% over its option duration.

For a slightly higher return with a bit less downside protection, investors can utilize the October $90 strikes for their covered call orders.

At the time of publication, Jensen was long DIS.