Shares of Walt Disney (NYSE:DIS) surged in the primary quarter because the entertainment and media giant was the highest performer amongst all stocks on the Dow Jones Industrial Average through Q1.

Disney stock reached a 52-week high of $122 per share on March 28, up by about 35% yr thus far. Nevertheless, it has since fallen back about 16% to its current price of around $102 per share. Disney stock remains to be up 16% YTD but well off its late March/ early April highs.

As we head into the second half of the yr, let’s take a better take a look at the outlook for Disney — and if the stock a buy right away.

Winning the proxy fight

Disney’s rise in the primary quarter was attributable to several aspects, including solid earningsresults, gains in its struggling streaming business, a recent enterprise for a sports-streaming service, and a victory of sorts in holding off a proxy challenge from activist investors, particularly hedge fund manager Nelson Peltz from Trian Partners.

Peltz had long been pushing for changes at Disney, mainly calling for expense reductions and enhancements within the streaming business. Disney has made significant progress on each.

Now with the proxy fight up to now, investors have been hoping that Disney might enjoy easier sailing going forward, but that has not been the case.

Stock price drops from 52-week highs

After the corporate released its fiscal second-quarter earnings results on May 7, its stock tanked about 9%, tumbling to about $105 per share, and it kept dropping from there.

Disney posted one other decent quarter that beat earnings estimates. Nevertheless, its revenue was only up 1% yr over yr, and it had a net lack of 1 cent per share. Those lackluster numbers can have spooked investors, but in case you look contained in the numbers, it looks as if an overreaction.

Disney’s adjusted EPS, which excludes goodwill impairments, was $1.21 per share, up 30% yr over yr. While the corporate’s overall revenue growth was muted, the direct-to-consumer (DTC) streaming business reported a $47 million operating profit. That streaming business is a critical business line and has been a significant drag on Disney’s earnings for a while, as evidenced by the $587 million loss in the identical quarter a yr ago.

Overall, revenue from the DTC business increased 13% within the quarter to $5.6 billion, lifting the Entertainment division as a substitute of dragging it down. Disney+ core subscribers grew by 6 million within the quarter.

Alternatively, Disney’s linear TV networks and movies business struggled, with linear networks revenue down 8% to $2.8 billion and content sales/ licensing (a.k.a., the movies business) revenue plunging 40% to $1.4 billion. The weakness in these two areas likely accounted for much of the drop in Disney’s stock price.

Is the market overreacting?

It’s a little bit of a head-scratcher that Disney’s stock price fell so sharply following that earnings release, provided that the corporate raised its guidance for adjusted earnings growth for the complete fiscal yr. Specifically, Disney is now calling for 25% adjusted earnings growth, up from the previous guidance of 20% growth.

Nevertheless, the stock-price drop can have been attributable to projections for “softer” ends in the streaming business in fiscal Q3. Disney+ Hotstar, its Indian streaming affiliate, lost the streaming rights to cricket.

On the earnings call, Chief Financial Officer High Johnston said Disney didn’t expect Disney+ core subscriber growth in Q3. Nevertheless, management did say they expect streaming to return to profitable growth in fiscal Q4 and be a “meaningful future growth driver for the corporate, with further improvements in profitability in fiscal 2025.

Deadpool 3 and Inside Out 2 could boost revenue

Disney’s stock has been running a bit hot, and its P/E ratio skyrocketed, doubling over the past yr to 111. Thus, a correction was due, and the valuation has come down right into a higher range. The forward P/E for Disney stock is now an affordable 18, which is more according to realistic earnings expectations.

The corporate could also see growth from upcoming movies, as its first summer blockbuster, Kingdom of the Planet of the Apes, looks like a success and is the fourth highest-grossing film thus far in 2024. The firm also has high expectations for Inside Out 2, set to drop on June 14. It is anticipated to having the most important opening weekend of the yr thus far with a projected $80 million to $85 million in box office revenue.

Then in July, Deadpool 3 is scheduled for release, and early ticket sales suggest it may very well be one other winner for Disney.

An excellent time to purchase Disney stock?

Overall, the May swoon for Disney stock looks overdone, as the corporate has cut expenses, moved its streaming business onto the road to profitability, and increased its free money flow.

The high P/E ratio is a priority, but Disney’s earnings have been challenged through the massive expense reductions and restructuring. Meanwhile, its stock price spiked after the proxy fight. Going forward, the value must be more according to actual earnings — thus the more reasonable forward P/E.

A robust summer box office, continued momentum on streaming, and the potential for growth with the upcoming sports-streaming enterprise could all give Disney a lift. Nevertheless, I’m looking more on the back half of the yr for Disney stock to spike again.

Within the near term, the value could drop a bit more on a potentially lackluster June quarter, perhaps presenting a greater buying opportunity.