Disney Bonds at 5.55%: Solid A Credit, but Buybacks Are Testing Cash Flow

Founded in 1923 as a cartoon studio, The Walt Disney Company is now one of the world's largest entertainment companies. It owns some of the most valuable franchises in the media industry such as Disney, Pixar, Marvel, Star Wars and National Geographic, alongside ESPN and a global network of theme parks and cruise ships.

The simplest way to understand how Disney makes money is as a flywheel. Its studios create stories and characters, which earn first through the box office, streaming subscriptions and television. Long after a film leaves cinemas, those characters keep generating income through theme park rides, hotel stays, cruises and licensed merchandise.

This is carried out through three segments: Entertainment, Experiences and Sports. Entertainment is Disney’s largest segment by revenue, earning from film releases, Disney+ and Hulu subscriptions, and TV networks such as ABC and FX. Trailing behind on revenue is Experiences, which covers theme parks, cruises and merchandise. It is Disney’s most profitable segment, with an operating margin of almost 30%. Sports, the smallest segment, is ESPN, earning from pay-TV affiliate fees, live sports advertising and its new streaming service, which now includes the NFL Network.

Earnings Surge as Parks and Streaming Drive Growth  

For 3QFY2026, ended 27 June 2026, Disney reported a 6.8% YoY increase in total revenue to USD25.2 billion. Entertainment revenue rose 6.0% YoY to USD11.3 billion, as an 11.5% YoY rise in subscription and affiliate fees more than offset lower advertising (-1.0%) and content sales (-6.0%). Sports revenue rose 4.5% YoY to USD4.5 billion, on an 8.4% YoY rise in subscription and affiliate fees, about half of which came from the NFL Network acquisition. Experiences revenue rose 9.7% YoY to USD10.0 billion, led by a 17% YoY jump in resorts and vacations, 10 percentage points of which came from additional cruise days after two new ships launched. Theme park admissions grew 9% YoY on higher ticket revenue per guest (+5%) and attendance (+3%).

Disney's profits saw bigger movements, with total operating income jumping 21.4% YoY to USD5.6 billion and lifting total operating margin from 19.3% to 22.0%. As shown in Figure 1, Entertainment saw the sharpest jump. Operating income was up 64.4% YoY to USD1.7 billion and operating margin rose from 9.5% to 14.8%, as streaming operating income more than doubled to USD712.0 million. Entertainment earnings still swing with the film slate, but with streaming now a steady profit contributor, they are less volatile than before.

Experiences remains the largest profit contributor, generating USD3.0 billion (up 19.9% YoY), more than half of total operating income from under 40.0% of revenue. Its margin widened from 27.7% to 30.3%, although about 4 percentage points of the growth came from a one-off ~USD100.0 million tariff refund. These hard, owned assets with pricing power make it the most valuable part of the business, though it depends on discretionary consumer and travel spending and absorbs most of Disney's capital expenditure (capex).

The only segment that moved backwards was Sports, where operating income fell 17.3% YoY to USD858.0 million and the margin narrowed from 24.1% to 19.1%. Programming and production costs rose 10.4% YoY on contractual rate increases, new sports rights and the timing of the NBA renewal. Rising rights costs and the decline of the cable bundle remain a structural pressure, although ESPN's new direct-to-consumer offering gives it a way to reach viewers directly.

Figure 1: Segment Operating Income and Margin (3QFY2025 vs 3QFY2026)

The management expects 4QFY2026 operating income of about USD4.9 billion, including the 53^rd week, up from USD3.5 billion in 4QFY2025. This represents 40.8% YoY growth, although part of it comes from the extra week. For bondholders, this is a positive sign as it supports Disney’s ability to service its debt.

Disney is also reportedly preparing thousands of job cuts, with some managers asked to target 20.0% in annual cost savings. If carried out, the savings would support margins and cash flow, which is positive for Disney’s ability to service its debt. However, part of the savings will be reinvested in content, technology, parks and cruises, and severance costs could weigh on cash flow in the near term.

Buybacks Are Outrunning Free Cash Flow

On a trailing 12-months (TTM) basis, free cash flow fell 28.2% YoY to USD8.3 billion, as operating cash flow dropped 11.3% to USD17.0 billion and capex rose 14.5% to USD8.7 billion (see Table 1). The fall in operating cash flow is largely timing, as about USD1.7 billion of FY2025 taxes deferred under California wildfire relief were paid in FY2026. Meanwhile, the higher capex mainly went into new cruise ships and theme park expansions.

In the last nine months, Disney spent about USD8.6 billion on dividends and buybacks, more than its free cash flow of USD5.7billion over the same period. For the full year, management targets at least USD9.0 billion of share repurchases. Earlier in the year, it guided operating cash flow of about USD19.0 billion and capex of about USD9.0 billion, which it reiterated on its latest earnings call. That implies free cash flow of around USD10.0 billion, enough to cover buybacks but not buybacks and dividends combined, so part of this year’s shareholder returns will again be funded by debt and the USD1.2 billion sale of its A+E stake. To cover this and its maturing debt, Disney has said it may draw on cash balances, operating cash flow, commercial paper (backed by USD12.25 billion of undrawn bank facilities) and new term debt.

For bondholders, this is a key risk that should be monitored going forward, as debt-funded shareholder returns could push leverage higher if earnings growth slows.

Table 1: Trailing-Twelve Months Free Cash Flow (end 3QFY2025 vs end 3QFY2026)

	TTM (ended June 2025)	TTM (ended June 2026)	YoY Change
Net Cash from Operations (USD millions)	19,145	16,989	-11.3%
Purchase of PPE (USD millions)	7,597	8,696	+14.5%
Free Cash Flow (USD millions)	11,548	8,293	-28.2%
Data as of 30 June 2026 Source: Company Financials

Leverage Edges Up, but Debt Servicing Strengthens

As shown in Table 2, total debt rose 8.9% YoY to USD46.0 billion, outpacing the 4.1% growth in total assets, so total debt-to-total assets edged up from 21.5% to 22.5%. The increase came mainly from USD4.0 billion of new US dollar notes issued in February 2026, a USD1.1 billion cruise ship loan for the Disney Destiny and USD2.3 billion of net commercial paper, partly offset by USD3.6 billion of repayments. Within this, borrowings due within the next 12 months jumped 50.5% YoY to USD8.6 billion, above cash of USD5.2 billion, raising near-term refinancing needs. However, adding its USD12.25 billion of undrawn bank facilities to cash gives total liquidity of about USD17.4 billion, covering short-term debt 2.0x.

With cash slipping 3.4% YoY to USD5.2 billion, net debt rose a faster 10.7% to USD40.9 billion. Equity grew only 2.7% YoY to USD116.8 billion, held back by USD7.2 billion of buybacks over the nine months, so net debt-to-total equity rose to 35.0%. While both ratios remain moderate, they show leverage drifting higher as debt grows faster than the asset and equity base.

Table 2: Balance Sheet and Leverage (3QFY2025 vs 3QFY2026)

	3QFY2025	3QFY2026	YoY Change
Total Debt [1] (USD millions)	42,263	46,041	+8.9%
Total Assets [2] (USD millions)	196,612	204,740	+4.1%
Total Debt / Total Assets [1/2] (%)	21.50	22.49	+1.0pp*
Cash and Equivalents [3] (USD millions)	5,367	5,185	-3.4%
Net Debt [4, 1-3=4] (USD millions)	36,896	40,856	+10.7%
Total Equity [5] (USD millions)	113,756	116,842	+2.7%
Net Debt / Total Equity [4/5] (%)	32.43	34.97	+2.5pp
Data as of 30 June 2026 Source: Company Financials *pp: percentage points

Disney’s TTM EBITDA grew 3.6% YoY to USD23.8 billion, slower than the rise in debt (see Table 3). As a result, total debt-to-EBITDA edged up from 1.8x to 1.9x, which remains relatively comfortable for its A ratings.

Meanwhile, TTM gross interest expense fell 6.9% YoY to USD1.8 billion, as lower average interest rates more than offset the higher debt balance, lifting interest coverage from 11.9x to 13.2x. This is well above the 3x minimum required under Disney’s bank facility covenant.

During Disney’s latest earnings call, CFO Hugh Johnston said the company is “not really looking to build cash” and is “not looking to delever the balance sheet meaningfully from here”, as it is comfortable with its current leverage. For bondholders, this means leverage is unlikely to fall, leaving less of a buffer if earnings growth slows.

Overall, Disney’s credit profile remains solid for its A ratings, with interest coverage of 13.2x and ample liquidity, though leverage is drifting higher as buybacks are increasingly funded with debt.

Table 3: Debt Servicing (Trailing Twelve Months, end 3QFY2025 vs end 3QFY2026)

	TTM (ended June 2025)	TTM (ended June 2026)	YoY Change
Total Debt [1] (USD millions)	42,263	46,041	+8.9%
EBITDA [2] (USD millions)	22,943	23,767	+3.6%
Total Debt / EBITDA [1/2] (x)	1.84	1.94	+0.1x
Gross Interest Expense [3] (USD millions)	1,928	1,795	-6.9%
Interest Coverage Ratio [2/3] (x)	11.90	13.24	+1.3x
Data as of 30 June 2026 Source: Company Financials

Bond Recommendation

Disney’s US dollar bonds currently yield between 5.20% and 5.86%, offering a pickup of 52 bps to 95 bps over US Treasuries of similar tenor (see Table 4). The pickup rises steadily with tenor, from 52 bps on the 2034 bond to 56 bps on the 2035 bond and 64 bps on the 2036 bond, before jumping to 95 bps on the 2038 bond.

Against peers, Disney trades tighter than both Netflix and Comcast. The DIS 6.200% 15Dec2034, rated A / A2 / - (S&P / Moody’s / Fitch), yields 5.20%, 25 bps less than the similarly rated NFLX 4.900% 15Aug2034 at 5.45% and 75 bps less than the CMCSA 4.200% 15Aug2034 at 5.95%. The DIS 6.400% 15Dec2035 yields 5.39%, 66 bps less than the CMCSA 6.500% 15Nov2035 at 6.05%. This suggests investors see Disney as a slightly safer credit than Netflix despite their identical ratings, and are willing to accept a lower yield to hold it, likely because of its larger, more diversified and asset-backed business. Comcast, rated a notch lower at A- / A3 / A-, yields more than a one-notch rating difference would usually explain, likely reflecting pressure on its broadband business.

Further out, the DIS 8.150% 17Oct2036 yields 5.51%, 12 bps less than the NFLX 5.250% 15Aug2036 at 5.63% and 51 bps less than the CMCSA 3.200% 15Jul2036 at 6.02%. The DIS 6.750% 09Jan2038 yields 5.86%, 58 bps less than the CMCSA 3.900% 01Mar2038 at 6.44%. Against Paramount Skydance, which is taking on substantial debt to fund its acquisition of Warner Bros. Discovery, Disney yields considerably less: the SKYD 4.850% 15Dec2034 (B+ / B2 / BB-) yields 13.61% at a deeply discounted price of 57.74, 841 bps more than the DIS 2034, to compensate for its sub-investment-grade credit risk.

Overall, we view Disney’s bonds as fairly priced. Yields are slightly below the similarly rated Netflix and the lower-rated Comcast, so investors are paying for a solid A-rated credit rather than receiving extra compensation relative to peers. Investors may consider the DIS 8.150% 17Oct2036, which yields 5.51% and is the largest of Disney’s issues at around USD 1.2 billion outstanding, offering better liquidity. With interest coverage of 13.2x and ample liquidity, Disney’s credit profile is strong enough to support a longer holding period, although investors should monitor leverage at the upcoming 4QFY2026 results as buybacks are increasingly funded with debt. For investors seeking more yield, the DIS 6.750% 09Jan2038 offers 5.86%, the highest pickup on Disney’s curve at 95 bps.

For investors seeking higher yields from the media sector who are comfortable with sub-investment-grade credit, the SKYD 4.904% 15Mar2032 (BB / B1 / BB) yields 8.13% with 5.4 years to maturity. However, investors should be mindful of its weaker credit quality. The company is taking on substantial debt to fund its acquisition of Warner Bros. Discovery, faces integration risks, and remains exposed to the structural decline of traditional TV.

Table 4: Peer Comparison

Issuer	Issue	Ask Price (USD)	Yield to Worst (%)	Call / Maturity Date (Years to Call / Maturity)	Credit Ratings (S&P / Moody’s / Fitch)
The Walt Disney Company	DIS 6.200% 15Dec2034 Corp (USD)	105.85	5.20	- / 15 Dec 2034 (- / 8.1)	A / A2 / -
The Walt Disney Company	DIS 6.400% 15Dec2035 Corp (USD)	107.21	5.39	- / 15 Dec 2035 (- / 9.1)	A / A2 / -
The Walt Disney Company	DIS 8.150% 17Oct2036 Corp (USD)	120.04	5.51	- / 17 Oct 2036 (- / 10.0)	A / A2 / -
The Walt Disney Company	DIS 6.750% 09Jan2038 Corp (USD)	107.18	5.86	- / 09 Jan 2038 (- / 11.2)	A / A2 / -
Comcast Corp	CMCSA 4.200% 15Aug2034 Corp (USD)	89.21	5.95	15 Feb 2034 / 15 Aug 2034 (7.3 / 7.8)	A- / A3 / A-
Comcast Corp	CMCSA 6.500% 15Nov2035 Corp (USD)	103.07	6.05	- / 15 Nov 2035 (- / 9.0)	A- / A3 / A-
Comcast Corp	CMCSA 3.200% 15Jul2036 Corp (USD)	79.52	6.02	15 Jan 2036 / 15 Jul 2036 (9.2 / 9.7)	A- / A3 / A-
Comcast Corp	CMCSA 3.900% 01Mar2038 Corp (USD)	79.82	6.44	01 Sep 2037 / 01 Mar 2038 (10.8 / 11.3)	A- / A3 / A-
Netflix Inc	NFLX 4.900% 15Aug2034 Corp (USD)	96.56	5.45	15 May 2034 / 15 Aug 2034 (7.5 / 7.8)	A / A2 / -
Netflix Inc	NFLX 5.250% 15Aug2036 Corp (USD)	97.18	105 5.63	15 May 2036 / 15 Aug 2036 (9.5 / 9.8)	A / A2 / -
Paramount Skydance	SKYD 4.904% 15Mar2032 Corp (USD)	86.22	8.13	15 Dec 2031 / 15 Mar 2032 (5.1 / 5.4)	BB / B1 / BB
Paramount Skydance	SKYD 4.850% 15Dec2034 Corp (USD)	57.74	13.61	15 Jun 2034 / 15 Dec 2034 (7.6 / 8.1)	B+ / B2 / BB-
Data as of 5 November 2026 Source: Bloomberg and Bondsupermart

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds NIL positions and the analyst who produced this report holds NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report — including all investment theses, ratings, price targets and conclusions — has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.