5 Reasons Disney Stock is a Buy in the Next 3 Months - Analyst Blog


by Thomas Young

Disney ( DIS ) , the current king of family entertainment, recently announced earnings on May 6. That gives investors three months to evaluate Disney's growth potential before any new company specific financial information becomes public (the next earnings announcement is slated for the week of August 4).

What could investors realize over the next three months that would boost Mickey's earnings potential more-so than its competitors?

Here are five Disney Stock movers.

First, believe it or not, Disney is, comparatively speaking, subject to less economic risk than most other companies. Here's Disney's total revenue breakdown over the past ten years.

Perhaps surprisingly, total revenue was by-and-large largely unaffected by the 2008 and 2009 recession (the ups and downs on the total revenue breakdown are seasonal).

On an annual basis, Disney's total revenue in 2007 was $36.5 billion. In 2008, that number increased to $37.0 billion, a gain of 1.4%. The 1.4% gain happened during the beginning of the worst recession in a century!

In 2009, total revenue amounted to $36.3 billion, a drop of 1.9%. In a world partially driven by something as fickle as consumers' discretionary spending, the fact that Disney's revenue only dropped 1.9% during the trough of 2009 should provide some indication of how consumers view Disney's product.

Essentially, should the economic tide sour in the next three months, a strong defensive position could be filled by Disney.

See Disney's full income statement

Second, contrary to what some might think, Disney will likely be a net beneficiary of a capitalist internet system, or as some disheartened activists called it - the end of "net neutrality."

Some might be asking how DIS could be a winner in the net neutraility debate. After all, wouldn't net neutrality show up as a cost on Disney's balance sheet?

The simple answers to the question is yes, but the real answer is more nuanced than that.

Essentially, although Disney would end up paying content fees to Comcast and other telecommunications companies for faster content speed, the faster speed would enable Disney to gain greater market share from the always-connected internet generation.

What's the breakeven point for Disney to be a net winner from the end of net neutrality (i.e. new ad revenue less the fees paid to Comcast and other telecommunications providers)?

No one really knows at this point, although Disney will certainly pay just enough to where they come out ahead. Simple as that.

Third, Disney's film studio, fresh off its 35% surge in revenue following the spectacular success of Frozen , appears set to continue on the strength of Frozen with a life outside of being just a top hit. Instead, Frozen is set to become a cultural phenomenon.

Overall, the sisters princess movie is set to rake in between $500 million and $1 billion in the coming year, lagging only Mickey Mouse ($4 billion), the Disney Princesses ($4 billion), Cars and Winnie the Pooh ($2 billion each), and Toy Story ($1 billion).

The Walt Disney Company - Quarterly Earnings Per Share | FindTheBest

Fourth, the internet is alive with speculation on the strength of Disney subsidiary ABC's new fall schedule. The new fall schedule includes new additions How to Get Away with Murder , Black-ish , Fresh off the Boat , and nine others.

Given that ABC finished third in viewership behind CBS and NBC, and fourth among the all-powerful 18-49-year-old demographic, there's nowhere to go but up for the network. That lack of downside risk bodes well for Disney's television revenue outlook.

Fifth, Disney's recent acquisitions don't appear to be fully priced into the stock, including Disney's acquisitions of Star Wars and Marvel Entertainment. Although Star Wars likely won't show up on the balance sheet for a few years, Marvel Entertainment is likely to be a big winner for some time.

Bottom Line

Overall, Disney's position appears quite attractive. Among the possible realizations investors could make in the coming months are Disney's strong historical performance during economic downturns, the beginning of a capitalist internet, strong results out of its film studio, greater upside potential from ABC, and Disney's newest acquisitions.

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DISNEY WALT (DIS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: DIS



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