NL EPS Part Two: DIS, SONY, LLY, NXST, HD, and WMT

Disney (DIS): Disney’s latest quarter marked a significant inflection point, showcasing tangible progress in its strategic pivot towards profitable growth across its diverse empire. The Direct-to-Consumer streaming business delivered the fourth consecutive quarter of meaningful profitability, a major milestone driven by cost discipline and pricing power. Management is shifting investor focus away from raw subscriber counts to core financial metrics, signaling that there are multiple revenue drivers including new and continuing subscribers, price increases, and advertising. Meanwhile, the Experiences segment, encompassing parks and resorts, continued to be a robust profit engine, delivering strong operating income growth with resilient per-capita guest spending, even as domestic attendance remained relatively flat amidst new competition from Universal’s new park in Orlando. Sports also saw a notable increase in operating income helped by favorable comparisons. DIS has strategically moved to acquire NFL Network assets and secure exclusive WWE Premium Live Events, with a full direct-to-consumer ESPN service launching imminently. While legacy linear networks continue their secular decline, Disney’s overall adjusted earnings per share exceeded expectations, and full-year guidance was raised. This performance underscores management’s commitment to transforming the business, balancing growth investments with a disciplined approach to capital allocation and aiming for enhanced lifetime customer value. Looking ahead, analysts are cautiously optimistic that Disney is truly turning the corner, expecting continued double-digit EPS growth fueled by streaming profitability, strategic park investments, and the unfolding ESPN digital strategy. The stock currently trades around 20 times forward earnings, a valuation seen as reasonable given its unique hybrid media and experiences model and improving fundamentals. Price targets range from $130 to $144, indicating potential for solid shareholder returns over the coming quarters.

Sony (SONY): Sony wrapped up a phenomenal first quarter of its fiscal year, defying some lingering market caution and showcasing its sharpened operational focus. The company delivered a record-breaking operating profit, fueled by impressive gains in its Game & Network Services segment, where earnings more than doubled on strong digital software and network service revenues. Player engagement on PlayStation soared, with active users and total playtime significantly higher, demonstrating a robust and growing ecosystem. Critically, management sees this profitability boost as largely structural, driven by optimized network services and a stabilizing pipeline of first-party content, despite some recent game launch postponements. The Imaging & Sensing Solutions division also shined, seeing double-digit sales and profit increases as the smartphone market continues its gradual recovery and demand for advanced sensors used in phone cameras grows. While the Entertainment, Technology & Services segment faced headwinds from softening consumer electronics demand, the overall strength of content and high-margin components more than offset this, leading to significant operating leverage for the consolidated group. The upcoming partial spin-off of its Financial Services unit by October is a significant strategic move, designed to streamline Sony’s profile and unlock latent value by letting investors focus squarely on its core entertainment and technology prowess. Looking ahead, the company prudently nudged up its full-year profit outlook, reflecting confidence from reduced U.S. tariff impacts and continued momentum in key segments. This strong performance, coupled with a strategic shift towards recurring revenue and high-value intellectual property monetization, positions Sony for sustained growth. Analysts project strong future earnings indicating that the market currently undervalues the sum of Sony’s world-class assets. We maintain a bullish outlook as the stock’s intrinsic value suggests significant upside, anticipating a 12-month price target into the $30’s as the market fully appreciates Sony’s strategic transformation and impressive execution.

Eli Lilly (LLY): Lilly delivered an undeniably strong second quarter, showcasing robust revenue and earnings growth that outpaced expectations, largely propelled by the impressive performance of its GLP-1 franchise, Mounjaro and Zepbound, which continue to capture significant market share in diabetes and obesity. While the financial print was solid, the market’s reaction was nuanced, with the stock pulling back on the data for orforglipron, the company’s oral obesity candidate. Despite showing clinically meaningful weight loss and a consistent safety profile, the results didn’t quite hit the perfect outcome that some had anticipated, leading to a recalibration of future expectations for the oral franchise. Estimates for the orforglipron weight loss bill are lower but the pill will still be a meaningful contributor to revenue and profit growth. Beyond this, Lilly is significantly scaling up its manufacturing capacity for incretin products, a critical step to meet soaring global demand for weight loss drugs. The company also continues to advance a deep pipeline with positive data from trials like SURPASS-CVOT for cardiovascular protection and ongoing progress for donanemab in Alzheimer’s. Management’s confidence is evident in their raised full-year guidance, ongoing capital allocation strategy, including a new substantial share repurchase authorization, a consistent 15% annual dividend increase, and insider buying across the executive suite after the shares pulled back. Despite its premium valuation, analysts mostly remain bullish on Lilly’s unique growth profile and pipeline depth, with price targets generally ranging from high-$800’s to low-$900’s, suggesting that while expectations are high, the long-term growth story remains compelling.

Nexstar (NXST): Nexstar wrapped a solid quarter, proving its core business remains resilient even in an off-election year, as distribution revenue held steady despite cord cutting hurting subscriber trends, while core advertising saw only modest dips. Crucially, the company’s strategic network bets are paying off; The CW continues its remarkable ascent with five consecutive quarters of primetime audience growth driven by a strategic pivot to live sports, while NewsNation is also growing viewership at an impressive clip. The big story, however, is the seismic shift in the regulatory landscape, with the critical Top-Four ownership rule vacated and the national cap under review, opening doors for industry consolidation that were long shut. This regulatory momentum has fueled active M&A discussions, most notably around Nexstar buying Tegna. Management has explicitly indicated their keen interest in external growth opportunities that will further expand Nexstar’s national footprint and enhance shareholder value. With a strong recently refinanced balance sheet providing ample flexibility and a disciplined capital allocation strategy that now prioritizes strategic acquisitions, Nexstar is poised to capitalize on these newly emerging growth avenues. The outlook remains compelling as the company eyes the robust political advertising cycle of 2026 and anticipates further transformative and highly accretive M&A. Current valuation metrics suggest the market isn’t fully appreciating this potential, with analysts projecting significant upside as price targets reach into the mid-$200s.

Home Depot (HD): Home Depot delivered a pivotal second quarter, showcasing the strongest underlying business performance in over two years with a return to positive comparable sales. This turnaround was fueled by an increase in average ticket, driven by a beneficial mix of higher-value items and sustained commodity inflation, even as transaction volumes saw a modest decline. Notably, strength was broad-based, with twelve of sixteen merchandising departments posting positive comparable sales, reflecting engagement from both professional and DIY customers. The company’s strategic push into the Pro segment continues to impress; the SRS acquisition is exceeding expectations, now integrated into the total company comp base and accelerating Pro ecosystem initiatives, a strategy further bolstered by the pending GMS acquisition which promises complementary capabilities. While the stubbornly high-interest rate environment still pressures large, debt-financed remodeling projects, management is confidently navigating macro uncertainties, leveraging diversified global sourcing to mitigate tariff impacts without resorting to broad-based price increases, aiming instead for market share gains through value and efficiency. Looking ahead, the company reaffirmed its full-year guidance, suggesting a stronger second half driven by ongoing momentum and a favorable foreign exchange tailwind. The Street remains largely optimistic, with Buy ratings predominant and twelve-month price targets ranging from $401 to $474, acknowledging the company’s robust competitive position and long-term growth potential despite the current valuation reflecting much of this positive sentiment.

Walmart (WMT): Walmart’s reported results reveal a business accelerating its strategic transformation, showcasing robust top-line momentum despite some expected profit headwinds. Revenue surpassed expectations, fueled by impressive comparable sales growth across Walmart U.S. and Sam’s Club, alongside an accelerating 25% global e-commerce surge. Notably, the company continues to gain market share across all income demographics, with particular strength among higher-income households drawn by enhanced convenience and broader offerings. However, reported operating income dipped due to a significant, one-off charge for general liability claims, which presented a substantial headwind. Management’s confidence remains high, maintaining its full-year operating income guidance and raising its sales and adjusted EPS outlook, effectively absorbing these unexpected costs through underlying business strength. This resilience is powered by the rapid growth of high-margin ventures like global advertising, including the VIZIO integration, and membership programs which now contribute a remarkable 50% of incremental profit. Walmart continues to execute a balanced “offense and defense” strategy, driving growth through digital innovation and convenience while safeguarding its value proposition with broad price rollbacks for price-sensitive consumers. Looking forward, the company anticipates continued strong sales momentum and expects operating income growth to outpace sales as these strategic investments fully mature. Current analyst valuation reflects this shift towards a tech-enabled ecosystem, with price targets ranging from $113 to $127, signaling further upside potential as the market fully appreciates this evolving narrative.

DIS, SONY, LLY, NXST, HD, and WMT are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is the sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.