Disney Stock Is A Bargain At Current Price Levels

  • Disney stock has buckled under ESPN's declining subscriber numbers.
  • Star Wars can provide long term stability.
  • Disney's financials puts them ahead of competitors on key metrics.

Recently named the world's most powerful brand, Walt Disney (NYSE:DIS)  is showing no signs of releasing its grip on its merchandise, media, and live attractions business. Recent news about declining ESPN subscriber figures caused Disney stock price to buckle over fears that this would cause a hit to Disney's long term growth. In fact, Disney's stock price is down by approximately 20% as compared to its peak of $121.69 on August 4th of 2015. Amidst the hype surrounding the then impending Star Wars release, Disney's stock price gained an astounding 33.3% between January and August of 2015.

DIS stock chart

Source: Disney stock price chart by amigobulls.com

There is some anxiety among the investment community about just how much can Disney leverage the success of Star Wars, and whether they can continue to grow other parts of their vast empire.

ESPN subscriber decline a cause for concern

Despite the fact that Walt Disney (NYSE:DIS) generates profits from five main segments, its 'Media Networks' arm is responsible for approximately 50% of profit. As a result, the news that a significant percentage of ESPN subscribers were leaving to streaming services such as Hulu and Netflix, was something that investors paid particular attention to. Plus with Netflix (NASDAQ:NFLX) increasing the amount of their original content, it isn't far-fetched to think that this trend will continue into the future. Also, increasing broadband access and speed also goes against ESPN.

Despite the fact that ESPN lost 3 million subscribers between October 2014, and October 2015, I don't view this as a big deal. Before you label me as crazy, let me explain. I would be very surprised if Disney hasn't already created a robust contingency plan in the event of an increase in the rate at which subscribers leave ESPN. However, in an industry where more is usually deemed as better, Disney needs to create a more compelling rival product to Netflix or risk being left far behind.

Star Wars will provide long term boost

It was so crucial for "Star Wars: The Force Awakens" to perform exceptionally at the box office. And in this regard, it exceeded expectations. The film is on track to reach $2 billion in global box office revenue in a week from now. This isn't what is getting investors really excited. The fact is that the success of the latest release will get more people into Disney's Parks once they create rides based around the film. Moreover, it is likely to trigger a boost to merchandise sales. Additionally, the success of Disney's first attempt at creating a Star Wars film should reduce the budget required to promote the next release, and also fuel growth in other areas of the business.

During an interview with the BBC, Disney's CEO, Bob Iger, confirmed that there will be "four more films" for Star Wars fans. This provides a huge opportunity for Disney to release new rides, merchandise, and 'milk' the franchise for all it is worth. Plus, with Star Wars fans spanning a wide demographic, there really is no limit to how much revenue they can make off the back of these huge successes at the box office.

Disney Financials

The reasons why Disney remains one of the most-loved companies by investors and analysts goes beyond the fact that it played a role in our childhoods. Since its IPO in 1978, the company continues to produce solid results.

Firstly, Disney's revenue growth currently stands at 9.1% as compared to the same quarter in 2015, well above the industry average of 6.3%. Consequently, this triggered a significant 10.5% boost to the EPS as compared to the same quarter last year. Plus, investors can expect Disney's revenue growth to  continue or at least stabilize. This leaves the conglomerate as a wise long-term investment.  Secondly, Disney's stock price outpaces the S&P 500 with regard to growth.

When we consider that competition is heating up in the media space, it is impressive that Disney continues to not only stand its ground, but move head-and-shoulders above their competitors.

It is worth noting that over the past 30 years, Disney has shown a solid trend of revenue growth. If that doesn't indicate consistency, I don't know what will.

Conclusion

Taking all things into account Disney stock is a bargain at its current price. This is a stable company with a fat cash cow in the shape of a lucrative Star Wars franchise. Plus, they are well diversified with revenue coming from five different segments. As a result, risk is spread, and investors can expect stable returns.

Netflix is a big competitor but if there is anyone who can go toe-to-toe with them on great content, it is Disney. Disney's next earnings report is set to drop on February 9th. I am going to make a bold prediction that it will be better than people expect and the long term outlook of the company will be favorable. As a result, Disney stock price will increase significantly.

Show Full Article
6 2
Is this article helpful ?    


Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and DIS stock

user profile picture
loveprotocal
bullish
Imagine when Star Wars comes out on video! This company knows how to promote and sell it's products and merchandise and does not shy away from new markets. Espn gained 12 million new international subscribers in the last year and this trumps the amount they lost domestically. In the meantime Disney seeks new Venue's for Espn and comes out on top in both the computer and cable markets. It already cut a deal with England to offer Disney programming via computer. Cable is not going anywhere, large screen TV's are all the rage and computers don't provide this or the ease of just flipping on a box when walking in a room and having it come on instantly. Plus people underestimate the tradition of Tv and just knowing others are watching the same channels with you!! The amount of selection and variety of cable with it's ultra-popular programs from Pawn stars and American Pickers on History channel and Weird foods on the Travel Channel to Duck Dynasty on A&E, partly Disney owned is strong and something you can't get cheap over the computer. The package deals for home phone, internet and cable still rule the day in a family setting at around 100 dollars a month. Most people have these smart phones today and Espn had more hits than any other network for it's programming. Look for Disney to continue to grow and expand itself in numerous ways which it seems to have a penchant for. Low Gas prices are a big plus for Disney all the way around from it's parks and movie division getting more people out on the road to it's lower cruise lines fuel overhead being able to pass the saving on to potential customers with package deals to get even more on board to the merchandise division gaining new sales from money saved on gas. Plus lower fuel prices helps keep the Cable companies prices very competitive and from increasing and gives them the ability to offer better deals. Same goes with the merchandise division, it can keep the prices on goods from being over-inflated. All in All Disney has what it takes to give people the most for their money and stay the leader in quality, diverse entertainment with it's resources and capital to throw around!
1 reply
user profile picture
harshal.patel.1
neutral
Does video even matter anymore? Won't most people just stream it?

I guess it could be a collector's item, but not sure how much $$ there is in video sales.

It'll be interesting to compare sales of past Star Wars releases
Do share this awesome post