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3 Reasons to Be Bullish on Disney Stock

Tom Taulli

Today is historic for Disney (NYSE:DIS) stock, as the company closed its $71 billion acquisition of assets of Twenty-First Century Fox (NASDAQ:FOX).

disney stock DIS stock

Source: Shutterstock For Disney CEO Robert Iger, the deal had its challenges. Keep in mind that Disney’s rival, Comcast, (NASDAQ:CMCSA) tried to buy the Fox assets. But Iger got aggressive, boosting the price that DIS was willing to pay by about $19 billion.

But I think it was a good move, and the deal is likely to spark meaningful increases in the DIS stock price. The transaction brought marquee assets to DIS, like major film franchises (Avatar and Marvel’s X-Men), TV shows (Empire, Modern Family, American Horror Story: Roanoke and American Dad) and cartoons (Ice Age and Rio).

Yet there are certainly more reasons to be bullish about DIS stock than just the FOX deal.

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So let’s take a look at three reasons to be bullish about Disney stock.

Reason to Be Bullish on Disney Stock: Diverse Assets

As seen with companies like GE (NYSE:GE), it’s tough to run disparate businesses. But this has not been an issue for Disney. The company’s diverse assets all are well-managed and seamless.

The conglomerate’s Parks and Consumer Products segment continues to grow at a nice pace. Keep in mind that the unit has been able to raise its prices, a testament to the power of the company’s premium brand and a positive catalyst for Disney stock price. And the company continues to launch new parks, such as those focused on Star Wars.

Then there is Disney’s studio business. Last quarter, the company’s movie unit slipped, as some films, such as Mary Poppins Returns and The Nutcracker and the Four Realms, performed badly at the box office.

But in 2019, Disney’s strong slate of movies should be a positive catalyst for Disney stock. Some of the company’s upcoming films are Dumbo, Aladdin, Star Wars: Episode 9, Frozen 2 and Avengers: Endgame. It’s pretty reasonable to assume that some of these flicks will be mega hits.


Reason to Be Bullish on Disney Stock: Streaming

Streaming is likely to be a game-changer for Disney stock. Iger is going all in on streaming. In the wake of the FOX deal, Disney’s equity position in Hulu will rise to 60%. The service currently has 25 million subscribers.

But the Disney+ streaming offering will be a bigger driver of Disney stock price. The service, which is expected to launch later this year, will have rich content, with titles from the Pixar, Marvel and Lucasfilm franchises. Also available through the channel will be the entire “Disney Vault,” which is the company’s large set of animated films. That content alone is likely to make Disney+ a must have for many consumers.

Indeed, JPMorgan’s (NYSE:JPM) Alexia Quadrani predicts that the service could attract as many as 50 million subscribers by the end of next year and eventually surpass Netflix (NASDAQ:NFLX). If she’s right, Disney stock would be boosted by a notable increase of the company’s recurring revenues.  Moreover, the company’s relationships with its customers would be strengthened, potentially leading to better targeting and content.

Actually, if DIS gets that kind of traction, there would be a disconnect between its performance and DIS stock price. After all, DIS stock has a market cap of $167 billion whereas that of NFLX stock is $161 billion.

Reason to Be Bullish on Disney Stock: Financials and Valuation

The valuation of Disney stock is fairly reasonable, as its forward price-earnings ratio is about 16. That is in-line with the multiple that DIS stock has had for the past four to five years. But with the expected catalysts from the film pipeline, the growth of the Parks business and the boost from streaming,  the multiple of Disney stock could easily increase.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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