Is it a Good Time to Buy Disney (DIS) Ahead of Star Wars? - Analyst Blog
Movies and finance never had a better camaraderie as was seen yesterday. The newly launched trailer of Star Wars: The Force Awakens helped The Walt Disney Company DIS to close trading at $108.10, up 1.1%, or in other words added nearly $2 billion to the stock’s market cap in a single trading session.
The ninety-second trailer was launched at the jam-packed Star Wars Celebration, an event hosted by director J.J. Abrams and producer Kathleen Kennedy in California. The Force Awakens picks up 30 years after Return of the Jedi.
Star Wars is one of greatest movie franchises of all time that Disney acquired when it bought Lucasfilms in 2012 for a staggering $4 billion. Though Disney is yet to release any movie under this franchise, the overwhelming response to the two trailers of Star Wars: The Force Awakens and more recently to the announcement of Star Wars: Episode VIII and a spin-off of the franchise Rogue One release dates is enough to understand the revenue potential of the franchise.
As a result, Disney is leaving no stone unturned to generate massive publicity for Star Wars: The Force Awakens that will release on Dec 18, 2015. Apart from releasing the digital version of the entire franchise in association with Twenty-First Century Fox, Inc. FOXA, the company is also developing ideas on adding Star Wars themes to its parks.
Currently, Disney is unarguably the most well positioned large cap stock in the media sector. It has struck gold at the box office with almost every movie released over the last couple of years. Frozen, Captain America 2, Maleficent and even an obscure series like Guardians of the Galaxy and more recently, Big Hero 6 and Cinderella all have done exceptionally well at the box office.
Stupendous success of the movies has brought great business to the Consumer Products division as well as the Parks and Resort segments, helping the company to earn nearly $49 billion in revenues in fiscal 2014, up 8% year over year. Disney’s profits skyrocketed with a 21% increase to $13 billion while earnings grew 26% to $4.26 per share in the fiscal.
Fiscal 2015 looks equally exciting. With Avengers 2 slated for Apr 22, 2015 release, Disney is bracing for another super success. The superheroes team re-uniting to fight Ultron is what movie buffs have been waiting for the past three years. The Avengers, released in 2012, not only had a fantastic opening but with a box office tally of over $1.5 billion, it is the third highest grossing film of all time behind 21st Century Fox’s Avatar and Titanic.
Made at a budget of $250 million, revenues are already projected to quadruple as the sequel is already billed as a billion dollar movie. Apart from this, Disney’s Ant-Man, another Marvel superhero film, will be released in theaters on Jul 17. Given the buzz surrounding Marvel studios these days and runaway success of its movies, Ant-Man is likely to be a success. Disney releases also awaits Pixar’s Inside Out on Jun 17 and Tommorowland on May 20. Pixar has hardly let down Disney.
Lastly, release of The Force Awakens in December will be a befitting end to a spectacular year. 2015 indeed is hyped to be a mega year for Hollywood where box office collections are projected cross the $11 billion mark. The lineup of big budget releases, mostly popular franchise players, from almost every studio right from Comcast Corp. CMCSA to Lions Gate Entertainment Corp. LGF is what both movie buffs and distributors are looking forward to.
Back to Disney, strength seen in cable networks, ESPN’s dominant position in the sports market, healthy consumer products sales and continuous good run of the Parks and Resort segment positions the company favorably for fiscal 2015. Also, extensive share repurchases will add to the good numbers.
In terms of share price Disney witnessed a 25% increase to $94.19 in 2014. Moreover, year to date, share prices have grown over 15%. With a long-term EPS growth rate of 10.5% and a forward P/E of 21.8, which is at a discount to the industry average of 38.80, Disney displays massive upside potential. Also, the company has outperformed the Zacks Consensus Estimate in the trailing six quarters by an average of 9.7%. As a result, the company is currently Zacks Rank #2 (Buy) stock.
Moreover, with an impressive movie slate running up to 2017, addition of popular themes to Parks and Resorts and several other developments, there is no stopping the Disney juggernaut anytime in the near future.
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