Disney (NYSE:DIS) may have finally positioned itself to enjoy better times. Despite turmoil at ABC and struggles with Lucasfilm, Disney stock has steadily moved higher since late May. The latest quarterly report further bolstered the stock as the company began to move close to all-time highs.
Unfortunately for long-time Disney investors, the cable cutting trend began to take its toll on DIS in the middle of the decade. As a result, the stock has traded in a range since 2015.
However, the company has taken steps to address its weaknesses. Now, it appears both the financials and the company’s future endeavors point to Disney finally breaking out of its range and returning to growth.
Disney and Better Content
Disney has seen a long road to recovery. Concerns about cable cutting at both the Disney Channel and ESPN caused a large amount of selling in 2015. The pain caused by these losses continues to hurt Disney. As a result, Disney stock has remained range-bound for more than three years.
However, it seems to have addressed these concerns. Disney beat out Comcast (NASDAQ:CMCSA) to purchase the entertainment assets of Twenty-First Century Fox (NASDAQ:FOXA). Further, to address revenue declines from cable cutting, Disney announced streaming services for both ESPN and Disney several months ago.
Good News from the Quarterly Report
In its most recent quarterly report, the company revealed the name of this service, Disney+. Previously, Netflix (NASDAQ:NFLX) stock reaped most of the benefits of this streaming.
NFLX stock increased for years, partially by showing Disney content. With that programming moving off of Netflix’s platform, much of that benefit will likely shift from Netflix to Disney. Similarly, ESPN+ will also bring back its set of viewers lost to cable cutting.
Furthermore, if the latest report offers any indication, growth and optimism returned to Disney. Yes, its Consumer Products & Interactive Media division saw income fall by 10%.
However, Parks and Resorts increased its income by 11%, while Studio Entertainment enjoyed a 157% increase in income. Even the Media Networks division, which includes the beleaguered ABC Network, managed a 4% increase in income.
Disney Stock Weathers Bad News
Even better, bad news has appeared to stop hurting Disney stock. DIS took a hit when Star Wars: The Last Jedi garnered poor reviews.
However, the abrupt cancellation of Roseanne and the lackluster performance of Solo: A Star Wars Story did not cause a drop in the stock price. I believe this lack of a selloff signified a bottom. Since those events in late May, DIS stock has risen by around 17%.
Even after that increase, the stock trades at a price-to-earnings (PE) ratio of just under 15. This comes in well below its five-year average PE ratio of 19.5. Furthermore, at around $117 per share, Disney trades near the all-time high of $122.08 per share the equity reached back in 2015.
Still, DIS remains range-bound. To break out of that range, Disney stock needs to close above that all-time high and stay there. If it can achieve that milestone, I believe from there it can take its PE ratio back into the low 20s. This would take DIS stock to the $150 per share level and beyond.
Concluding Thoughts on Disney Stock
Both the improved financials and the recovery of lost cable cutters should bode well Disney. DIS spent the last three years stuck in a trading range, primarily due to revenues lost from cable cutting.
However, the introduction of Disney+ and ESPN+ have brought back optimism from the stock. Moreover, setbacks such as lackluster results from Lucasfilm movies and the loss of Roseanne have stopped hurting the stock.
The previous quarterly report confirmed the improvements, and now Disney trades near the all-time high. If the equity can set a new all-time high and stay above the $122 per share level, DIS stock will become hard to stop.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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