Walt Disney (NYSE:DIS) stock popped in early August to its highest levels since before the Covid-19 pandemic emerged on strong third-quarter earnings which broadly underscored that Disney is well-positioned to rebound strongly once coronavirus headwinds pass. And pass they will. Soon. Likely by early 2021. Paving the path for DIS stock continue to power higher over the next 6+ months.

To that end, I think you stick with DIS stock here and now. Yes, the stock has already bounced back in a big way form its coronavirus levels. But shares also remain well off their pre-Covid highs, and DIS stock appears ready to take out those highs next year.

So stick with the rally.

Here’s a deeper look.

Messy Earnings and DIS Stock

Disney’s Q3 earnings report was messy. But it was the exact mess you’d expect to see from a multi-faceted entertainment giant that got hit hard by a pandemic.

The Parks business got killed. Revenues dropped 85% year-over-year. The Studio Entertainment business also got killed. Revenues dropped 55% year-over-year. No surprises there. Theme parks were closed for most of the quarter. So were movie theaters. You can’t do much revenue when things are closed.

But, Disney+ had another great quarter. The streaming service added 24 million subs in the quarter, growing 70% quarter-over-quarter to 57.5 million subs. That number today stands north of 60 million. Again, no surprises there. Everyone is stuck at home, and Disney makes some of the best content in the world, so of course Disney+ is seeing robust uptake.

The Media business held up well amid a choppy ad spending backdrop. Margins fared well, too, because of lower costs. Profits got killed. But remained in positive territory on an adjusted basis.

So, overall, it was a messy print, but nothing too surprising.

Covid-19 Recovery

Disney’s earnings report confirmed that Disney’s presently depressed businesses, namely, the Parks, Studio and Media businesses, are well-positioned to rebound strongly as coronavirus headwinds fade.

It appears increasingly likely that we will get an approved Covid-19 vaccine sometime in late 2020 or early 2021. At the same time, production of vaccine candidates is ramping today. So, shortly after approval — by early 2021 or mid-2021 — the general public will likely have easy and widespread access to a workable Covid-19 vaccine.

Given that base timeline, consumer behavior is positioned to dramatically normalize over the next 12+ months. Theme parks will reopen. Movie theaters, too. And they will start to get crowded again, as public fear of Covid-19 moderates with the emergence of vaccine.

Consumer spending will pick up, too, leading to a rebound in ad spending. And professional and college sports will return, too, leaving ESPN with a full slate of highly-watched content in 2021.

Net net, Disney’s big Parks, Studio and Media businesses should all rebound significantly over the next 12+ months, making DIS stock a strong Covid-19 recovery play.

Streaming Upside

Disney’s earnings report also confirmed that Disney is increasingly turning into a full-boar streaming player. Not only did Disney+ continue to grow by leaps and bounds in the quarter (70%-plus sub growth), but the platform is now a third the size of Netflix (NASDAQ:NFLX).

Disney is also pushing forward with turning Disney+ into a premium movie distribution channel, with management announcing that the theatrical release of Mulan will be canceled and that the film will instead be pushed through Disney+ at a $30 price point.

In other words, its becoming clearer by the day that Disney+ will one day turn into a streaming platform that could reach global ubiquity, with a ton of upside revenue drivers through expanded content distribution (imagine if, instead of going to theaters, Disney decided to permanently adopt $30 rentals through Disney+ for its new movie launches).

This streaming upside will continue to support gains in DIS stock both over the next 6+ months, and 6+ years.

Disney Stock Can Go Higher

By my numbers, Disney stock can go plenty higher over the next few quarters.

Assuming the Parks and Studio businesses rebound in 2021/22 and return to stable growth thereafter, the Media business stabilizes going forward and the DTC business continues to grow at a robust pace, then my modeling suggests that Disney is on track to report $10 in earnings per share by 2025.

Entertainment stocks typically trade around 15- to 20-times forward earnings. Disney is a high-quality entertainment company. Arguably, the highest quality entertainment company.

Therefore, DIS stock reasonably deserves a 20-times forward multiple. A 20-times multiple on $10 in 2025 earnings per share, implies a 2024 price target for DIS stock of $200.

Discounted back by 8.5% per year, that implies a 2020 price target for DIS stock of near $145.

As such, I think DIS stock is far from being overvalued today.

Bottom Line on DIS Stock

The big picture here is pretty simple.

A Covid-19 recovery plus continued robust growth in the streaming entertainment space will power DIS stock higher over the next 6+ months.

So, if you really do believe that the world will look a lot more normal in 2021 than it does today and that Disney+ is the next big thing in streaming, then buy DIS stock today.