Disney - Compelling Long-Term Investment In 2019 And Beyond

Challenging Market Resiliency:

Stocks are entering 2019 in a bear market territory and posted its worse quarter since the Great Depression after imploding in Q4 of 2018. Disney (DIS) has been a diamond in the rough given the negative backdrop albeit down from its 52-week high by 8%. This stock has bucked the negative trend and has demonstrated its resilience during this time period. As this sell-off presents itself, long term investors may want to take advantage of this weakness and initiate a position in this high-quality company at a discount. All the initiatives that Disney has taken over the previous two years to restore growth appear to be coming to fruition, namely its Fox (FOX) acquisition and its streaming initiatives.

The Fox acquisition is complete now that the U.S. and China provided the green light for the combined entity thus Fox’s assets are now definitively being absorbed by Disney. As part of the contingencies, Disney is divesting its 39% Sky ownership stake that it acquired via the Fox acquisition to Comcast (CMCSA). This divestiture enables Disney to reduce its debt that was required to purchase the Fox media assets and will allow more investment into its streaming services such as Hulu, ESPN Plus and its Disney branded streaming service that will directly compete with Netflix (NFLX). The Fox acquisition brings a majority stake in Hulu (60% ownership) while its ESPN Plus launched earlier this year and has over 1 million subscribers in its early phases of being rolled out. Disney continues to dominate at the box office while posting great growth at its theme parks translating into a robust and durable revenue stream. The company is evolving to meet the new age of media consumption demands of the consumer via streaming and on-demand content. To this end, shareholders and analysts are beginning to resonate with Disney’s vision for future growth. This was reflected in its stock and had appreciated to a 52-week high prior to the market wide meltdown. Disney offers a compelling long-term investment opportunity in light of the recent weakness given its reinvention catalysts that will continue to bear fruit over the coming years. 

Disney’s Quarterly Earnings – Top and Bottom Line Beats:

Disney reported fantastic fiscal Q4 2018 numbers that beat on both the top and bottom line, reporting revenue of $14.31 billion which beat by $580 million and EPS of $1.55 which beat by $0.22. The revenue growth came in at a double-digit clip, posting 12% growth year-over-year. Revenues were up across the board with Media Networks up 9%, Parks and Resorts up 9% and Studio Entertainment up 50% while Consumer Products & Interactive Media down 8%. Operating income followed with Media Networks up 4%, Parks and Resorts up 11%, Studio Entertainment up 173% and Consumer Products & Interactive Media down 10%.  

“We’re very pleased with our financial performance in fiscal 2018, delivering record revenue, net income and earnings per share,” “We remain focused on the successful completion and integration of our 21st Century Fox acquisition and the further development of our direct-to-consumer business, including the highly anticipated launch of our Disney-branded streaming service late next year.”

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Disclosure: The author does not hold shares of Disney however may engage in options trading with the underlying security. The author has no business relationship with any companies mentioned in ...

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