After all the shareholder concerns about Disney (NYSE: DIS) and its slumping ESPN subscribers, investors are getting a dose of Disney magic again with the smash hit film Beauty and the Beast.
The movie had a huge opening weekend haul of $175 million in domestic opening-weekend ticket sales, a level usually reserved for mid-summer blockbusters.[ad#Google Adsense 336×280-IA]Disney’s huge movie studio segment is growing at such a fast rate for Disney that it could eclipse $10 billion in revenue this year.
Ticket and merchandising revenue from Beauty and the Beast could help Disney get there. And combined with Disney’s other strong business segments, and there is a compelling case for why the stock is an attractive buying opportunity now.
Disney Is in Beast Mode
Beast’s opening numbers were so strong that it made it the best March film debut ever.
And that figure does not include international results. Beauty and the Beast added another $182 million in international box-office sales, which puts the movie on pace for more than $1 billion in ticket sales before it’s all said and done.
The film has yet to open in France, Australia and Japan, which means its results could be even better than forecasted.
Keep in mind that this movie was not even being counted on to lead Disney’s movie business. Disney’s core movie studio franchises include Pixar, Marvel and Lucasfilm, which produce hit movies such as Star Wars, as well as a host of superhero and animated films.
Disney’s movie studio business was its fastest-growing segment by far last year. Revenue increased 28% last year, to $9.4 billion.
Beauty and the Beast is just a plump bonus to an already-dominant movie studio.
And there are plenty more reasons to buy the stock.
Other Businesses are Thriving
Not only do Disney’s hit movies translate into huge box-office revenue, but they also naturally flow into related merchandise sales.
Beauty and the Beast will likely be a tailwind for Disney’s merchandise segment, which is already a $5.5 billion business by annual revenue.
And, Disney’s parks and resorts are also gaining; the resorts segment grew revenue by 5% last year.
Last year Disney opened its new Disney Shanghai park in China. The resort took several years to build at a cost over $5 billion, but it is likely to pay off.
That puts Disney at dead-center one of the fastest-growing emerging markets in the world with a population of 1 billion, a surging middle class and rising discretionary spending. Disney believes more than 300 million people live within three hours of the resort.
And Then There’s ESPN
Meanwhile, in Disney’s media businesses, the panic over subscriber losses may be overblown.
Disney’s Media Networks still managed to grow revenue by 2% last year. And, even if ESPN continues to lose some subscribers due to cord-cutting, it remains the top brand in sports.
Consumers are shifting toward internet TV and streaming options, rather than sticking with higher-priced cable packages; that certainly is a valid concern for ESPN. But it is also true that Americans love sports, and sports cannot be streamed or binge-watched.
Sports must be watched live, which provides ESPN with an embedded advantage over other networks that are more vulnerable to cord-cutting.
Disney is aggressively working to reduce costs at ESPN to right-size its operating structure. These efforts should help stabilize segment profitability in 2017.
Disney stock has performed well recently; shares have gained 20% in the past six months.
But the stock may still be too cheap. Disney shares trade for a P/E ratio of 20, which is significantly below the average P/E of 26 in the S&P 500 Index.
With its world-class brand, strong profitability, and high growth potential, Disney remains an attractive stock. Its 1.4% dividend yield is the icing on the cake. And so, investors, “Be our guest!”
— Bob Ciura[ad#wyatt-generic]
Source: Wyatt Investment Research