Walt Disney (NYSE:DIS) still hasn't recovered from its fiscal second quarter earnings this year as the stock is still trading well under $100 a share. The market just didn't respond well to earnings which had revenue coming in below consensus and the stock has been selling off ever since. In fact, the stock is down $8 a share since May 11th but I feel the market may have over-reacted this time round. Why? Well, when you look under the hood, it is plain to see that the studio entertainment division is thriving (posting 22% top line growth last quarter).

Furthermore, EBITDA spiked by 8% to reach $4 billion, free cash flow climbed 12% and adjusted EPS was up 11% compared to the same quarter of 12 months prior. What caused the sell-off was the media networks business which posted lower revenues in fiscal Q2. Investors are obviously worried about the longevity of ESPN and are punishing the stock for seeing no growth in this side of the business (although profits continue to increase). How long the market will take this view is something I do not know. However, what I do know is that Disney is a well diversified company that can easily offset slowing growth in its TV side through stellar growth in its other divisions.

Studio Division Will Eventually Take Over The Baton From TV

As noted above, the studio entertainment division is going like gangbusters at the moment and doesn't look like it will slow down any time soon. Studio currently makes up about 25% of the company's operating income (and about 20% of revenue) which means it still has a bit to go before catching the ESPN side of the business which makes up around 33% of operating income (and 42% of current revenues).

However, one needs to look at the growth which the studio division has had up to now. In the last two years alone, studio revenue has grown from 15% of company-wide sales to now 20%. Furthermore, operating income (OI) made up 14% of total OI two years ago but now makes up 24%. Moreover, the company keeps beating box office records with films such as "Find Dory" and "Star Wars" and when you see what is planned across all of its components (Pixar, Marvel & Lucasfilm), its obvious that studio will go from strength to strength which means it will continue to contribute a larger share of operating income.

Acquisitions Will Be The CEO Iger's Legacy

Secondly, Disney seems to really have its finger on the pulse of what the public wants and we can see this success in its acquisitions which have thrived under the Disney umbrella. Aside from the three acquisitions mentioned above, Disney also controls "Walt Disney Animation" and "Walt Disney Pictures" which means the brand has some of the best franchises in Hollywood. The company is predicted to bring in $5.81 in earnings per share this year and $6.17 the following year. Remember that the success of the brand's films and the parks go hand in hand which is why I believe Disney's recently opened park in Shanghai, for example, will be a resounding success - so much so that a second one is being planned already..

Balance Sheet Is Exceptionally Strong

In terms of the company's balance sheet, metrics look very strong. Operating margins continue to expand, earnings growth is robust and free cash flow hit $2.25 billion last quarter. The company's debt to equity ratio is 0.35 which is solid and its dividend yield is 1.45%. Furthermore, the float continues to come down with the company buying back $2.04 billion of its stock in the last quarter.

On the valuation front, the stock has an earnings multiple of 18 and a sales multiple of 3 which are close to the company's long term averages. However, because of the company's growth profile, I see the stock trading at a higher earnings multiple in the next few years. Why? Well, there was heavy investment involved in building parks (such as Shanghai) which I believe now will bear fruit in the quarters to come.

Furthermore, the company has another Star Wars film being released later this year which will be another growth trigger for the company. Investors have to realize that once the CEO Robert Iger acquired the multiple companies he did, it changed the landscape of the company. I foresee the "new" Disney comfortably trading at an earnings multiple of 22+ which would add at least $20 a share to its current price. Buy while you can here.

What's the Takeaway?

Disney is trading at a discount at present. It won't trade under $100 a share for long. Its balance sheet is exceptionally strong and although revenues may not have matched analysts expectations recently, profits are still growing meaningfully. I recommend going long on Disney stock at these levels.