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It’s the Jedi and Not the Jocks That Will Propel Walt Disney Co Stock


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The ugly situation at ESPN is getting uglier. Yet despite the ugliness, Walt Disney Co  (NYSE: DIS ) remains a best-in-class selection as far as media and entertainment stocks go. DIS stock is now sitting at the mid-point of its 52-week range.

ESPN is in trouble, losing 7,000 subscribers  a day while rival NBC Sports Network added 160,000 subscribers and Twenty-First Century Fox Inc (NASDAQ: FOX ) unit FS1 added 549,000 subscribers, putting NBCSN and FS1 narrowly behind ESPN in total households, 85,246,000 for Comcast Corporation (NASDAQ: CMCSA ) unit NBCSN and 85,297,000 for FS1 according to Nielsen estimates." ESPN has 87.5 million.

But ESPN isn't suffering from cord cutting. It's suffering because its programming has been lackluster and it's been wearing its politics on its sleeve. Sports is where people go to forget the political battles in the media. ESPN is alienating half its audience.

However, ESPN appears to have issued tighter social media policies. That hopefully will help.

DIS Stock is Still a Choice Holding

Nevertheless, Walt Disney stock remains a premier investment, despite being down 18% from its high. And the ESPN issue may see some relief. DIS is ramping up its streaming strategy for its BAMTech platform to boost revenue at its Media Networks division. As it is, the BAMTech purchase brought Major League Baseball, the NHL, golf, and tennis content. Disney is going to create up to five original branded series and as many as four Disney-branded movies for the platform.

It will take awhile to ramp up, but Disney content is always strong, and over time, should garner significant revenues for DIS stock.

The truth is that Disney is still family entertainment. Having that streaming options will be very useful for parents, especially those who want to keep heir children constantly entertained. With more than 100 million global subscribers watching  Netflix, Inc. (NASDAQ: NFLX ), it seems that the Disney brand name, along with Pixar should be able to easily crack the 40-million-subscriber mark over time. At $10 a month, that would mean at least $4 billion in revenue to boost DIS stock.

Yet I see Walt Disney stock propelled further by its theme parks and studio products. Between LucasFilm, Pixar, and Marvel, Disney has bought into decades upon decades of content. Marvel has more than 5,000 characters in its universe. As long as the films continue to be quality storytelling, Marvel will make Disney tons of money. "Thor 3: Ragnarok" is performing well, and the constant mix of sequels and "Avengers" films, along with all the TV characters and deals with ABC and Netflix make Marvel a juggernaut.

The Force is Strong Behind DIS Stock

Meanwhile the "Star Wars" properties continue to be hot tickets. DIS stock is going to benefit big time from "Star Wars: The Last Jedi" because it is able to pry 65%-70% of revenue from exhibitors for this film. Normally, studios and exhibitors enjoy a 50-50 split. However, in this terrible year for box-office, and the high demand for the film, Disney is leveraging its brand by wrestling the exhibitors down to 30-35%.

This won't be the only time that happens. Meanwhile, as the rest of the movie business continues to suffer from lousy content, Disney remains top of class.

The Parks and Resorts division now accounts for almost 35% of revenue. Operating income grew 18% YOY, and is now 29% of operating revenue, up from 22% in just one year.

Near-term, there are headwinds from ESPN. I believe those matters will get sorted out and DIS stock may prove to be undervalued. ESPN could be sold to someone like John Malone of Liberty Media or another buyer. Consequently, DIS stock remains a long term play, to be held for decades.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years' experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.

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The post It's the Jedi and Not the Jocks That Will Propel Walt Disney Co Stock appeared first on InvestorPlace .



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



This article appears in: Investing , Financial Advisor Center
Referenced Symbols: DIS , NFLX , CMCSA , FOX


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