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I've maintained for some time that Walt Disney Co (NYSE: DIS ) is one of the most misunderstood stocks on Wall Street.
Although the company does currently find itself on the wrong side of the cord-cutting trend, Disney won't be on the wrong side forever. With streaming video launches set for 2018 and 2019, Disney will actually turn the cord-cutting headwind into a subscriber-gaining tailwind. The company will eventually become a sizable Netflix, Inc. (NASDAQ: NFLX ) competitor. Because Disney is behind some of the best content in the world, this part of Disney's business could scale rather quickly.
For the longest time, Wall Street didn't buy this thesis. Just last week, Walt Disney stock was trading near 52-week lows. In fact, DIS stock has been stuck in neutral since the end of 2014.
That sideways run lines up, more or less, with cord-cutting becoming a nationwide trend.
But a quarterly earnings call in which management focused on the company's streaming video efforts over the next 2 years has changed all that.
Walt Disney stock has bounced big over the past week. This stock looks ready to turn a huge corner, thanks to critical streaming video service launches over the next 2 years which should dramatically shift the narrative in favor of Disney.
Consequently, I'm buying here. DIS stock is gearing up for take-off.
Consumers Love Walt Disney Content
The bull thesis on Walt Disney stock is pretty simple.
Disney is behind some of the best content in the world. From Disney to Pixar to Lucasfilm to Marvel, DIS owns the world's most robust and diverse content portfolio.
Just look at box office results. DIS is responsible for the top three grossing films in 2016, three of the top four grossing films in 2015 , and two of the top four grossing films in 2014 . So far this year , Disney is responsible for two of the top three grossing films, and that is before a big Star Wars movie at the end of the year.
Or look at what is popular on Netflix. The "Popular on Netflix" tab is dominated by Netflix originals like Stranger Things , Mindhunter , and Narcos , but Disney movies also make a strong showing on that list. Currently, Disney movies Moana , Beauty & The Beast , Rogue One , Meet the Robinsons , Zootopia , Finding Dory , Doctor Stranger and The Jungle Book are all popular on Netflix.
Walt Disney Stock Will Get Boost From Streaming Video
Clearly, consumers love to watch Disney content.
They just aren't watching it through traditional cable mediums anymore. They are watching it through Netflix, and that is hurting Disney's Media Networks business.
But that all gets fixed over the next 2 years when Disney launches its own streaming video platforms.
ESPN Plus is set to launch in Spring 2018. It will essentially be the over-the-top version of ESPN. You get most of the live shows and live events through the ESPN Plus app.
That will fix ESPN's really big sub churn problem.
A Disney-branded streaming service will debut in the back-half of 2019. This is the big Netflix competitor that will likely have huge success due to Disney's broad content portfolio. All those Disney movies on Netflix that are super popular now will disappear from Netflix by 2019. They will be available only through Disney's streaming platform.
Moreover, Disney is taking another page out of the Netflix playbook and delving into original programming. The Disney streaming service will include 4 to 5 exclusive films per year as well as original series. Already in development is a Star Wars live-action series as well as other series based on Monsters and High School Musical .
The biggest kicker? The Disney service will be offered at a substantial discount to Netflix.
Bottom Line on Walt Disney Stock
Disney is set to be a huge player in the streaming video space. Walt Disney stock isn't priced for this. It's trading at just 18-times earnings versus a 5-year average price-to-earnings multiple of 20.
That is why I'm buying Walt Disney stock. It's set to breakout over the next 2 years as Disney fixes its cord-cutting problem by transforming into a formidable Netflix competitor.
As of this writing, Luke Lango was long DIS and NFLX.
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