Can theme parks and studio purchases lift shares of Disney even higher? The stock continues to hit new 52-week highs, rising more than 30 percent since January.
Robert Luna, chief executive of SureVest Capital Management, names Disney (DIS) as his pick of the year. Luna says Disney’s reinvestment and acquisition strategy is the most important thing to watch in continuing earnings growth and share price appreciation for the foreseeable future.
The company’s investments in theme parks should begin to pay off between 2014 and 2015, according to Luna. Currently, the company’s Parks Division makes up about 30 percent of revenue. Year-over-year ticket sales in Florida and California are up 6 percent and 10 percent, respectively.
Shanghai Disney is on track to open in 2015 and could hit in excess of 9 million visitors in its first year. Luna said that could add more than $500 million to Disney earnings in 2015.
Adding to acquisitions are two new cruise ships purchased in 2011 and 2012. The Disney Fantasy line is showing strong bookings and price momentum.
Its studio division continues to grow and add to the bottom line. Every Pixar blockbuster brought in $100 million. Marvel is turning out hit after hit. In fact, Marvel’s Iron Man 3 posted more than $175 million in its opening weekend. And now Disney’s $4 billion purchase of Lucasfilm will bring in even more money, Luna said. The first of a trilogy of Star wars films will be released in 2015, Luna said, and films based on individual characters are currently in production. Luna expects those releases to hit earnings sometime in 2015.
According to Luna, Disney plans to buy back the 40 million shares that were issued for the acquisition over the next few years, which will be supportive for the stock.
For now, Disney’s consumer products division accounts for only 8 percent of gross revenue. It was 12 percent five years ago because the company spun off Disney stores, but they have since acquired them back in the past year. Luna feels this is a big opportunity and will reap the benefits of Iron Man 3, the coming Star Wars releases, and a growing presence in the emerging markets including China and India. Those catalysts could get Disney Consumer division growth back in excess of 20 percent growth over the next few years.
Luna has a 12-month target price of $76 per share and a 24-month target of $92 dollars per share.
Disclosure: Robert Luna personally owns shares of Disney, as do some of his clients.
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