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Remember That There’s More to Disney Stock Than Just Streaming

Will Ashworth

Every conversation in the business media about Disney (NYSE:DIS) these days seems to revolve around its new video streaming service that rolls out in 2019. It’s as if Disney stock lives or dies on its success or failure.

Just go to the InvestorPlace homepage and check out the latest articles about Disney and you’ll see that lots of stories discuss streaming.

Here are a few quotes from articles in September alone.

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“The stock has been hit by doubts over the upcoming launch of its own over-the-top streaming service and fears the Star Wars franchise is losing some steam (after underwhelming results for the Han Solo spinoff),” wrote Anthony Mirhaydari.

Here’s another.

“There’s a heated debate going on right now about DIS’s plans to launch its own streaming-media service next year and whether it will be able to compete with Netflix (NASDAQ:NFLX),” wrote John Jagerson and Wade Hansen.

And lastly.

“The determining factor in the streaming world is content. Disney owns all the best content franchises. They’ve also shown an unparalleled ability to continue to develop great content with those franchises.

“Thus, Disney streaming will become a huge product, and the success of Disney streaming will power Disney stock higher,” wrote Luke Lango .

I’m not trying to downplay the importance of streaming to Disney stock.

On the contrary, I think it’s a vital part of the company’s future. I said as much in February arguing that Disney stock was cheap and should be bought, in part, due to the future potential of its two streaming services. 

That said, I do think that investors tend to forget the other parts of its business. The unsung heroes, if you will.

Parks and Resorts Are 0ut of the Spotlight

Last October I suggested Disney stock was undervalued in a big way. One of my arguments revolved around its parks and resorts business.

“While the studio entertainment segment is the sexiest of the three remaining operating segments, the parks and resorts business are the most consistent,” I wrote. “Factor in the trend toward experiential travel and entertainment and you’ve got a real moneymaker.”

As part of my argument, I compared Disney’s parks and resorts business to Vail Resorts (NYSE:MTN), North America’s leader in winter and summer destinations.

At the time, Offshoot Investment Research analyst Eric Nickolaison gave Disney’s parks and resorts a per share valuation of $48-$54 based on a multiple of 13.5-15 times EBITDA; Vail Resorts was trading at 16 times EBITDA at the time.

Vail might own Whistler Blackcomb, but that doesn’t mean it should have a higher multiple than Disney properties.

Mickey Mouse vs. Vail or Whistler? Disney wins that every time.

Where Disney Stands

Through the first nine months of fiscal 2018, Disney’s parks and resorts increased revenue by 10.8% year over year to $15.2 billion; its operating income increased by 20.2% year over year to $3.6 billion or 24% of revenue.

Meanwhile, Vail Resorts through the first none months of fiscal 2018 increased revenue by 6.0% year over year to $1.8 billion; its operating income increased by 8.3% year over year to $471.1 million or 26% of revenue.

On the one hand, Vail Resort’s operating margins are slightly higher, but on the other, Disney is growing both the top- and bottom-line at a faster pace.

Vail Resorts is currently trading at approximately 18 times its operating income on an annualized basis. Apply the same multiple to Disney’s parks and resorts; I get a value of $86 billion, almost eight times the size of Vail Resorts.

The Bottom Line on Disney Stock

Yes, streaming is important, but don’t forget the unsung heroes like the parks and resorts. It’s this area of Disney’s business where there are no question marks.

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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