Over the last four years, Disney (NYSE:DIS) stock has not rewarded the long-term shareholders well enough to get excited about its future prospects. From January 2015 to March 2019, Disney stock has range-traded between a low of $90 and a high of $120. And DIS has mostly underperformed other Dow Jones stocks.
Source: Baron Valium via Flickr
However, I believe that Disney stock now offers fundamental value and growth potential. Year-to-date, it is up almost 4%.
On Mar. 14, it closed at $114.48 and in the next few months, the stock is likely to go and stay over $120. Therefore, I suggest that long-term investors consider adding Disney stock into a diversified portfolio.
Here is why …
Disney’s Robust Revenue Streams
Disney, the media and entertainment conglomerate, has diversified revenue streams, spanning across multiple geographies. It also enjoys tremendous brand recognition globally.
Four segments constitute the revenue areas for Disney:
- Media networks (such as ABC and ESPN),
- Parks and Resorts (such as Disneyland and cruise lines),
- Studio Entertainment (such as Lucasfilm, and Marvel),
- Consumer Products & Interactive Media (such as the retail chain, The Disney Store, and ESPN+)
On Feb. 5, the company reported revenues of $15.3 billion and earnings of $1.84 a share and beat analysts’ estimates on both. Investors noted that Disney will be repositioning itself toward direct-to-consumer (DTC) services.
Disney Has an Exciting Year Ahead
In all four segments, 2019 promises to be an exciting year for the entertainment powerhouse.
Some of the movies being released include Captain Marvel, Dumbo, Disneynature’s Penguins, Avengers: Endgame, Aladdin, Toy Story 4, The Lion King, Artemis Fowl, Frozen 2 and Star Wars: Episode 9. Although it is hard to know the exact earnings potential of each release, many of them are expected to become blockbuster hits.
In 2018, Disney’s theme parks enjoyed increasing attendance rates and higher guest spending, leading to double-digit growth in revenues. Both California and Florida will be welcoming new Star Wars theme park extensions later in the year. And analysts are expecting another stellar year for the parks, partly due to the Star Wars boost.
Its new streaming service, Disney+, will launch by the end of the year and include original movies and TV shows from Disney’s brands, including Marvel and Pixar. The platform is expected to concentrate largely on offering content for families. In preparation for this service, DIS is expected to pull its movies off of Netflix (NASDAQ:NFLX).
Disney’s ESPN+ platform, the DTC sports entertainment video service, already has over 2 million subscribers. On Apr. 11, the company will hold an investor day when it will provide a first look at Disney+ and its original content.
This year, Disney will also finalize the acquisition of most of the assets from Twenty-First Century Fox (NASDAQ:FOX, NASDAQ:FOXA). The merger deal will give Disney access to Fox’s popular film production businesses, including 20th Century Fox, Fox Searchlight Pictures, Fox 2000, as well as Fox’s television businesses.
Company management has been upbeat about the positive effects of Fox’s popular franchises and branded content on Disney’s ecosystem. With this acquisition, the company will also control a majority of Hulu, another streaming-media company, whereby Disney’s 30% stake is set to become 60%. In the end, Hulu is expected to have mostly adult content as opposed to Disney+, which will focus on kids and will not even feature any R-Rated movies.
Within the past decade, the entertainment marketplace has been changing as we have witnessed the impressive growth of streaming and mobile video. Now the end-user has much more control of what to watch. Creating growth opportunities in this competitive industry requires proactive management. And that’s where one of Disney’s strengths may lie.
It has been a premier entertainment company for over ninety years. It started as a niche provider of animated children’s content. Then following the robust domestic growth until the 80’s, it started its international expansion by opening several theme parks globally. In 1983, the Disney Channel also began programming, setting the stage for expanding the group’s influence across many segments. In 1996, Disney opened its first website as well as a radio station. 21st century saw Disney acquiring many prestigious brands and companies, such as Pixar Animation Studios and Marvel Entertainment as well as Lucasfilm, which gave the company the rights to the Star Wars Franchise. As a result, DIS has content to appeal to every age and interest group globally.
I believe we are now witnessing the next stage in Disney’s history as the company has been working hard to enter the technology-driven content distribution space. The combined content library of Disney and Fox which will be streamed over three platforms, i.e., Disney+, ESPN+ and Hulu, is expected to give Disney enough power to rival Netflix.
Netflix, which started its streaming business in 2007 as a content aggregator and later moved on to create its own original content, currently has over 140 million global subscribers. Analysts expect DIS to surpass this number and rival Netflix’s market share.
The upcoming 5G revolution should also be a strong catalyst for the entertainment industry and the share price for the leaders of the DTC streaming model.
5G stands for “fifth generation mobile networks.” The benefits of 5G will include much faster download speeds, more data capacity — a must for the Internet of Things (IoT) devices — and very little lag in mobile applications, which should have a positive impact on the development of online gaming, streaming, smart cities as well as self-driving cars.
The next few years will show if Disney will be able to carry out this new phase of corporate expansion effectively.
The Bottom Line on DIS Stock
I regard DIS stock as one of the key entertainment and media stocks to buy for value and future growth. Despite the lagging share price since 2015, the company has an extremely strong global brand and exciting growth prospects in streaming media.
March may bring further volatility to the stock market and I would not advocate bottom picking; however, I find Disney stock to be a compelling buy candidate at current levels. Since 2011, the company has also been paying a dividend, with a current yield of 1.54%. Long-term investors may see any further price declines as opportunities to go long DIS stock. In three to four years, patient shareholders are likely to be rewarded handsomely.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
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